U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - KSB
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-22062
UWHARRIE CAPITAL CORP
167 North Second Street
Albemarle, North Carolina 28001
(704) 983-6181
North Carolina 56-1814206
--------------- -----------
(State of incorporation) (IRS Employer Identification No.)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $1.25 Par Value
The Registrant has filed all reports required by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the Registrant's
knowledge, in the definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
The Registrant's revenues for the year ended December 31, 1999 were $14,456,309.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the sale price of the common stock in recent transactions
was $30,707,703. Shares of common stock held by each executive officer and
director have been excluded in that such persons are deemed to be affiliates.
As of March 20, 2000, the Registrant had 5,539,025 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 Annual Report to Shareholders are incorporated
by reference into Part II of this report. Portions of the Registrant's
definitive Proxy Statement dated April 7, 2000 are incorporated by reference
into Part III.
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (check one) Yes ( ) No (X)
<PAGE>
FORM 10-KSB CROSS REFERENCE INDEX
As indicated below, portions of (i) the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1999, and (ii) the
Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held
May 2, 2000, filed with the Securities and Exchange Commission via EDGAR are
incorporated by reference into Parts II and III of this report.
Key
---
AR Annual Report to Shareholders for the fiscal year ended December 31,
1999.
Proxy Proxy Statement dated April 7, 2000 for the Annual Meeting of
Shareholders to be held May 2, 2000.
10-KSB 10-KSB for the fiscal year ended December 31, 1999
<TABLE>
<CAPTION>
Document
--------
<S> <C> <C>
PART I
Item 1. Business....................................................... Page 3 10-KSB
Item 2. Properties..................................................... Page 10 10-KSB
Item 3. Legal Proceedings.............................................. Page 10 10-KSB
Item 4. Submission of Matters to a Vote of Security Holders............ Page 10 10-KSB
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ Page 4 AR
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ Page 31 AR
Item 7. Financial Statements and Supplementary Data.................... Page 6 AR
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ Page 11 10-KSB
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of Exchange Act...... Page 5 Proxy
Item 10. Executive Compensation......................................... Page 7 Proxy
Item 11. Security Ownership of Certain Beneficial Owners and
Management......................................... Page 2 Proxy
Item 12. Certain Relationships and Related Transactions................. Page 9 Proxy
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Index to Exhibits.................................... Page 12 10-KSB
(b) Reports on Form 8-K Page 12 10-KSB
</TABLE>
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Uwharrie Capital Corp (the "Company") is a North Carolina bank holding company.
The Company was organized on July 1, 1993 to become the bank holding company for
the Bank of Stanly (the "Bank"), a North Carolina commercial bank chartered on
September 28, 1983 and its two wholly-owned subsidiaries, The Strategic Alliance
Corporation ("Strategic Alliance") and BOS Agency, Inc. ("BOS Agency"). The Bank
also owns a 50% interest in Corporate Data Services Inc., a North Carolina
corporation that provides operations and data processing services. The Company
formed a new subsidiary, Strategic Investment Advisors, Inc., during 1999 to
provide investment advisory and asset management services.
On January 19, 2000, the Company completed its acquisition of Anson BanCorp,
Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North
Carolina savings bank charter and became a wholly-owned subsidiary of Uwharrie
Capital Corp. The Savings Bank operates under the name "Anson Bank & Trust Co."
Uwharrie Capital Corp, Bank of Stanly and its subsidiaries and Strategic
Investment Advisors, Inc. are located in Stanly County, which has previously
been the Company's primary service area. Anson Bank & Trust Co. is located in
Anson County. The Company intends to prudently expand its service area to
include the entire Uwharrie Lakes Region of North Carolina.
The Company is community oriented, emphasizing the well being of the people in
its region above financial gain in directing its corporate decisions. In order
to best serve its communities, the Company believes it must remain a strong,
viable, independent financial institution. This means that the Company must
evolve with today's quickly changing financial services industry. In 1993, the
Company implemented its current strategy to remain a strong independent
community financial institution that is competitive with larger institutions and
allows its service area to enjoy the benefits of a local financial institution
and the strength its capital investment provides the community. This strategy
consists of developing and expanding the Company's technological capabilities
while recruiting and maintaining a workforce sensitive to the financial services
needs of its customers. This strategy has provided the Company with the capacity
to grow and leverage the high cost of delivering competitive services.
At December 31, 1999 the Company and related subsidiaries had 69 full-time and
32 part-time employees. Six additional employees joined the Company as a result
of the acquisition of Anson Bank and Trust Co. in January 2000.
BUSINESS OF THE BANK(S)
The Bank of Stanly is a North Carolina chartered commercial bank incorporated in
1983 and commenced banking operations on January 26, 1984. Its main banking
office is located at 167 North Second Street, Albemarle, North Carolina, and it
operates four other banking offices located in Stanly County, North Carolina.
The Bank is the only commercial bank headquartered in Stanly County.
Its operations are primarily retail oriented and directed to individuals and
small to medium-sized businesses located in its market area, and its deposits
and loans are derived primarily from customers in its geographical market. The
Bank provides most traditional commercial and consumer banking services,
including personal and commercial checking and savings accounts, money market
accounts, certificates of deposit, individual retirement accounts, and related
business and individual banking services. The Bank's lending activities include
commercial loans and various consumer-type loans to individuals, including
installment loans, mortgage loans, equity lines of credit and overdraft checking
credit. The Bank also issues Visa(R) Check Card, an electronic banking card,
which functions as a point-of-sale card
3
<PAGE>
and allows its customers to access their deposit accounts at three branches of
the Bank and at the automated teller machines of other banks linked to the
HONOR(R) or CIRRUS(R) networks. The Bank is licensed to offer MasterCard(R)
credit cards. The Bank does not provide the services of a trust department.
Anson Bank & Trust Co., acquired by the Company on January 19, 2000, was
originally chartered in 1889 as Anson Building and Loan Association, a North
Carolina chartered mutual savings institution. Later changed to Anson Savings
Bank, it was converted to a stock chartered institution in June, 1998. As a
subsidiary of the Company, Anson Bank & Trust Co. can provide the same level of
financial services listed above to the Anson County market. Its main office and
banking location is 211 S. Green Street in Wadesboro, North Carolina.
NON-BANK SUBSIDIARIES
Bank of Stanly has two wholly-owned subsidiaries, BOS Agency, Inc. ("BOS
Agency") and The Strategic Alliance Corporation ("Strategic Alliance"). BOS
Agency was formed during 1987 and engages in the sale of various insurance
products, including annuities, life insurance, long-term care, disability
insurance and Medicare supplements. Strategic Alliance was formed during 1989 as
BOS Financial Corporation and, during 1993, adopted its current name. It is
registered with the Securities and Exchange Commission and licensed by the
National Association of Securities Dealers ("NASD") as a securities
broker-dealer.
The Company has one non-bank subsidiary, Strategic Investment Advisors Inc.,
which is registered as an investment advisor with the State of North Carolina
and Florida. It began operations on April 1, 1999 and provides portfolio
management services to customers in the Uwharrie Lakes Region.
DATA PROCESSING JOINT VENTURE
During 1992 the Bank entered into a joint venture agreement with two other banks
to form Corporate Data Services, Inc. ("CDS"), a North Carolina corporation that
provides operations and data processing services for community banks. The Bank's
ownership in this venture increased from one-third to one-half during 1995 due
to a merger involving one of the owners and the subsequent forfeiture of their
stock. The Bank's investment in CDS at December 31, 1999 amounted to $240,000.
The Bank has entered into an agreement whereby it will sell its fifty percent
ownership to the other fifty percent owner over the next eighteen month period.
COMPETITION
Commercial banking in North Carolina is extremely competitive, due in large part
to statewide branching. The Company encounters significant competition from a
number of sources, including other bank holding companies, commercial banks,
thrift and savings and loan institutions, credit unions, and other financial
institutions and financial intermediaries.
Among commercial banks, the Bank competes in its market area with some of the
largest banking organizations in the state, several of which have hundreds of
branches in North Carolina and billions of dollars in assets. Moreover,
competition is not limited to financial institutions based in North Carolina.
The enactment of federal legislation authorizing nationwide interstate banking
has greatly increased the size and financial resources of some of the Company's
competitors. Consequently, some competitors have substantially higher lending
limits due to their greater total capitalization, and may perform functions for
their customers that the Company currently does not offer. As a result, the
Company could encounter increased competition in the future that may limit its
ability to maintain or increase its market share or otherwise materially and
adversely affect its business, results of operations and financial condition.
4
<PAGE>
The Bank depends on its reputation as a community bank in its local market,
direct customer contact, its ability to make credit and other business decisions
locally, and personalized service to counter these competitive disadvantages.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS.
The Company's success is dependent to a significant extent upon economic
conditions in Stanly County and more generally, in the Uwharrie Lakes Region. In
addition, the banking industry in general is affected by economic conditions
such as inflation, recession, unemployment and other factors beyond the
Company's control. Economic recession over a prolonged period or other economic
dislocation in Stanly County and the Uwharrie Lakes Region could cause increases
in non-performing assets and impair the values of real estate collateral,
thereby causing operating losses, diminishing liquidity and eroding capital.
Although management believes its loan policy and review process results in sound
and consistent credit decisions on its loans, there can be no assurance that
future adverse changes in the economy in the Company's market area would not
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
IMPACT OF TECHNOLOGICAL ADVANCES; UPGRADE TO COMPANY'S INFRASTRUCTURE
The banking industry is undergoing, and management believes will continue to
undergo, technological changes with frequent introductions of new
technology-driven products and services, including internet banking. In addition
to improving customer services, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend, in part, on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as enhance efficiencies in the
Company's operations. Management believes that keeping pace with technological
advances is critical for the Company in light of its strategy to continue its
sustained pace of growth. As a result, the Company intends to continue to
upgrade its internal systems, both through the efficient use of technology
(including software applications) and by strengthening its policies and
procedures. At the same time, the Company anticipates that it will expand its
array of technology-based products to its customers.
INTERSTATE BANKING AND BRANCHING
Federal law permits adequately capitalized and managed bank holding companies to
acquire control of the assets of banks in any state (the "Interstate Banking
Law"). Acquisitions are subject to anti-trust provisions that cap at 10% the
portions of the total deposits of insured depository institutions in the United
States that a single bank holding company may control, and generally cap at 30%
the portion of the total deposits in any state that a single bank holding
company may control. Under certain circumstances, states have the authority to
increase or decrease the 30% cap, and states may set minimum age requirements of
up to five years on target banks within their borders.
Beginning June 1, 1997, and subject to certain conditions, the Interstate
Banking Law also permits interstate branching by allowing a bank to merge with a
bank located in a different state. A state may accelerate the effective date for
interstate mergers by adopting a law authorizing such transactions prior to June
1, 1997, or it can "opt out" and thereby prohibit interstate branching by
enacting legislation to that effect prior to that date. The Interstate Banking
Law also permits banks to establish branches in other states by opening new
branches or acquiring existing branches of other banks if the laws of those
other states specifically permit that form of interstate branching. North
Carolina has adopted statutes which, subject to conditions contained therein,
specifically authorize out-of-state bank holding companies and banks to acquire
or merge with North Carolina banks and to establish or acquire branches in North
Carolina. South Carolina, Tennessee and Virginia have similar laws and
interstate mergers or branching has occurred or has been applied for among these
three states and North Carolina.
5
<PAGE>
SUPERVISION AND REGULATION
The business and operations of the Company and its Subsidiary Bank are subject
to extensive federal and state governmental regulation and supervision.
Registrant is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and is subject to supervision and
examinations by and the regulations and reporting requirements of the Federal
Reserve. Under the BHCA, the activities of the Company and the Bank are limited
to banking, managing or controlling banks, furnishing services to or performing
services for their subsidiaries or engaging in any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any financial institution, or merging or consolidating with another bank holding
or savings bank holding company, without prior approval of the Federal Reserve.
Additionally, the BHCA prohibits the Company from engaging in, or acquiring
ownership or control of more than 5% of the outstanding voting stock of any
company engaged in a non-banking activity unless such activity is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto. In approving an application by the Company to engage in a
non-banking activity, the Federal Reserve must consider whether that activity
can reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.
There are a number of obligations and restrictions imposed by law on a bank
holding company and its insured depository institution subsidiaries that are
designed to minimize potential loss to depositors and the FDIC insurance funds.
For example, if a bank holding company's insured depository institution
subsidiary becomes "undercapitalized," the bank holding company is required to
guarantee (subject to certain limits) the subsidiary's compliance with the terms
of any capital restoration plan filed with its appropriate federal banking
agency.
Also, a bank holding company is required to serve as a source of financial
strength to its depository institution subsidiaries and to commit resources to
support such institutions in circumstances where it might not do so absent such
policy. Under the BHCA, the Federal Reserve has the authority to require a bank
holding company to terminate any activity or to relinquish control of a nonbank
subsidiary upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of a
depository institution subsidiary of the bank holding company.
As a result of its ownership of a North Carolina-chartered commercial bank, the
Company also is registered with and subject to regulation by the North Carolina
Commissioner of Banks (the "Commissioner") under the state's bank holding
company laws. The Commissioner has asserted authority to examine North Carolina
bank holding companies and their affiliates.
The Bank is a North Carolina commercial bank and its deposits are insured by the
Bank Insurance Fund ("BIF") of the FDIC. The Bank is subject to supervision and
examination by and the regulations and reporting requirements of the
Commissioner and the FDIC. The Bank also is a member of the Federal Home Loan
Bank System (the "FHLB System"). Anson Bank & Trust Co. is a North
Carolina-chartered savings bank and its deposits are insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC. Anson Bank & Trust Co. also is
a member of the FHLB System. It is subject to supervision and regulation by the
FDIC and the North Carolina Savings Administrator ("Administrator").
The Bank is subject to legal limitations on the amounts of dividends it is
permitted to pay. Prior approval of the Commissioner is required if the total of
all dividends declared by the Bank in any calendar year
6
<PAGE>
exceeds its net profits (as defined by statute) for the preceding two calendar
years, less any required transfers to surplus. As an insured depository
institution, the Bank also is prohibited from making capital distributions,
including the payment of dividends, if after making such distribution, it would
become "undercapitalized" (as such term is defined in the Federal Deposit
Insurance Act). Anson Bank & Trust Co. is subject to limitations on the payment
of dividends in the same manner as is the Bank. Prior approval of the
Administrator is required before any dividends are paid by Anson Bank & Trust
Co.
Under current federal laws, certain transactions between a depository
institution and its affiliates are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a depository institution is any company or
entity that controls, is controlled by or is under common control with the
institution, and in a holding company context, the parent holding company of a
depository institution and any companies which are controlled by such parent
holding company are affiliates of the depository institution. Generally,
Sections 23A and 23B (i) limit the extent to which a depository institution or
its subsidiaries may engage in covered transactions with any one affiliate, and
(ii) require that such transactions be on terms and under circumstances
substantially the same, or at least as favorable, to the institution or the
subsidiary as those provided to a nonaffiliate.
The Bank and Anson Bank & Trust Co. are subject to various other state and
federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and equal credit, fair reporting laws and laws
relating to branch banking. As insured institutions, the Bank and Anson Bank &
Trust Co. are prohibited from engaging as a principal in activities that are not
permitted for national banks unless (i) the FDIC determines that the activity
would pose no significant risk to the appropriate deposit insurance fund and
(ii) the institution is and continues to be in compliance with all applicable
capital standards. Insured institutions also are prohibited from directly
acquiring or retaining any equity investment of a type or in an amount not
permitted for national banks.
The Federal Reserve, the FDIC, the Commissioner and the Administrator all have
broad powers to enforce laws and regulations applicable to the Company, the Bank
and Anson Bank & Trust Co. and to require corrective action of conditions
affecting the safety and soundness of the Bank and Anson Bank & Trust Co. Among
others, these powers include cease and desist orders, the imposition of civil
penalties and the removal of officers and directors. The Company, the Bank and
Anson Bank & Trust Co. in the past have not had, and do not foresee in the
future, any significant regulatory compliance problems.
CAPITAL REQUIREMENTS
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines which require a minimum ratio of total capital to
risk-weighted assets of 8%. At least half of the total capital is required to be
composed of common equity, retained earnings and a limited amount of qualifying
perpetual preferred stock, less certain intangibles ("Tier I capital"). In
addition to the risk-based capital guidelines, the Federal Reserve has adopted a
minimum leverage capital ratio under which a bank holding company must maintain
a level of Tier I capital to average total consolidated assets of at least 3% in
the case of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a leverage capital ratio of at least
1% to 2% above the stated minimum.
The Bank and Anson Bank & Trust Co. also is subject to capital requirements
imposed by the FDIC. Under the FDIC's regulations, insured institutions that
receive the highest rating during the examination process and are not
anticipating or experiencing any significant growth are required to maintain a
minimum leverage ratio of 3% of Tier I capital to average total consolidated
assets. All other insured institutions are required to maintain a minimum ratio
of 1% or 2% above the stated minimum, with a minimum leverage ratio of not less
than 4%. The FDIC also requires the Bank to have a ratio of total capital to
risk-weighted assets of at least 8%.
7
<PAGE>
SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by the FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1995, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest risk exposure, asset growth, asset
quality, earnings, stock valuation and compensation, fees and benefits and such
other operational and managerial standards as the agencies deem appropriate. The
federal bank regulatory agencies have adopted, effective August 9, 1996, a set
of guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director, or principal stockholder. The federal
banking agencies determined that stock valuation standards were not appropriate.
In addition, the agencies adopted regulations that authorize, but do not
require, an agency to order an institution that has been given notice by an
agency that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If, after being so notified, an institution fails to
submit an acceptable compliance plan, the agency must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized association is subject under the
prompt correction action provisions of FDICIA. If an institution fails to comply
with such an order, the agency may seek to enforce such order in judicial
proceedings and to impose civil money penalties.
COMMUNITY REINVESTMENT ACT
The Bank and Anson Bank & Trust Co. are subject to the provisions of the
Community Reinvestment Act (CRA). Under the terms of the CRA, the appropriate
federal bank regulatory agency is required, in connection with the examination
of a bank, to assess such bank's record in meeting the credit needs of the
community served by that bank, including low and moderate-income neighborhoods.
The regulatory agency's assessment of the bank's record is made available to the
public. Such an assessment is required of any bank, which has applied for any
application for a domestic deposit-taking branch, relocation of a main office,
branch or ATM, merger or consolidation with or acquisition of assets or
assumption of liabilities of a federally insured depository institution.
Under CRA regulations, banks with assets of less than $250,000,000 that are
independent or affiliated with a holding company with total banking assets of
less than $1 billion, are subject to streamlined small bank performance
standards and much less stringent data collection and reporting requirements
than larger banks. The agencies emphasize that small banks are not exempt from
CRA requirements. The streamlined performance method for small banks focuses on
the bank's loan-to-deposit ratio, adjusted for seasonal variations and as
appropriate, other lending-related activities, such as loan originations for
sale to secondary markets or community development lending or qualified
investments; the percentage of loans and, as appropriate, other lending-related
activities located in the bank's assessment areas; the bank's record of lending
to and, as appropriate, other lending-related activities for borrowers of
different income levels and businesses and farms of different sizes; the
geographic distribution of the bank's loans given its assessment areas, capacity
to lend, local economic conditions, and lending opportunities; and the bank's
record of taking action, if warranted, in response to written complaints about
its performance in meeting the credit needs of its assessment areas.
Regulatory agencies will assign a composite rating of "outstanding,"
"satisfactory," "needs to improve," or "substantial noncompliance" to the
institution using the foregoing ground rules. A bank's performance need not fit
each aspect of a particular rating profile in order for the bank to receive that
rating;
8
<PAGE>
exceptionally strong performance with respect to some aspects may compensate for
weak performance in others, and the bank's overall performance must be
consistent with safe and sound banking practices and generally with the
appropriate rating profile. To earn an outstanding rating, the bank first must
exceed some or all of the standards mentioned above. The agencies may assign a
"needs to improve" or "substantial noncompliance" rating depending on the degree
to which the bank has failed to meet the standards mentioned above. The
regulation further states that the agencies will take into consideration these
CRA ratings when considering any application and that a bank's record of
performance may be the basis for denying or conditioning approval of an
application.
CHANGE OF CONTROL
State and federal law restricts the amount of voting stock of a bank holding
company or a bank that a person may acquire without the prior approval of
banking regulators. The overall effect of such laws is to make it more difficult
to acquire a bank holding company or bank by tender offer or similar means than
it might be to acquire control of another type of corporation.
Pursuant to North Carolina law, no person may, directly or indirectly, purchase
or acquire voting stock of any bank holding company or bank which would result
in the change of control of that entity unless the Commissioner first shall have
approved such proposed acquisition. A person will be deemed to have acquired
"control" of a bank holding company or bank if he, she or it, directly or
indirectly, (i) owns, controls or has the power to vote 10% or more of the
voting stock of the bank holding company or bank, or (ii) possesses the power to
direct or cause the direction of its management and policy.
Federal law imposes additional restrictions on acquisitions of stock in bank
holding companies and FDIC-insured banks. Under the federal Change in Bank
Control Act and the regulations thereunder, a person or group acting in concert
must give advance notice to the Federal Reserve Board or the FDIC before
directly or indirectly acquiring the power to direct the management or policies
of, or to vote 25% or more of any class of voting securities of, any bank
holding company or federally-insured bank. Upon receipt of such notice, the
federal regulator either may approve or disapprove the acquisition. The Change
in Bank Control Act generally creates a rebuttable presumption of a change in
control if a person or group acquires ownership or control of or the power to
vote 10% or more of any class of a bank holding company or bank's voting
securities; the bank or bank holding company has a class of securities that are
subject to registration under the Securities Exchange Act of 1934; and,
following such transaction, no other person owns a greater percentage of that
class of securities.
GOVERNMENT MONETARY POLICY AND ECONOMIC CONTROLS
As a bank holding company whose primary asset is the ownership of the capital
stock of a commercial bank, the Company is directly affected by the government
monetary policy and the economy in general. The actions and policies of the FRB
which acts as the nation's central bank can directly affect money supply and, in
general, affect banks' lending activities by increasing or decreasing their
costs and availability of funds. An important function of the FRB is to regulate
the national supply of bank credit in order to combat recession and curb
inflationary pressures. Among the instruments of monetary policy used by the FRB
to implement these objectives are open market operations in U.S. Government
securities, changes in the discount rate and surcharge, if any, on member bank
borrowings, and changes in reserve requirements against bank deposits. These
methods are used in varying combinations to influence overall growth of bank
loans, investments and deposits, and interest rates charged on loans or paid for
deposits. The Bank is not a member of the Federal Reserve System but is subject
to reserve requirements imposed by the Federal Reserve on non-member banks. The
monetary policies of the FRB have had a significant effect on the operating
results of commercial banks in the past and are expected to continue to do so in
the future.
9
<PAGE>
GRAMM-LEACH-BLILEY ACT OF 1999
The Gramm-Leach-Bliley Act of 1999 represents the most sweeping reform of
financial services regulation in over sixty years. The Act permits the creation
of new financial services holding companies that can offer a range of financial
products under a regulatory regime based on the principle of functional
regulation. The legislation eliminates legal barriers to affiliations among
banks and securities firms, insurance companies, and other financial services
companies. The Act provides financial organizations with flexibility in
structuring these new financial affiliations through a holding company structure
or a financial subsidiary, with appropriate safeguards.
Registrant cannot predict what legislation might be enacted or what regulations
might be adopted, or if enacted or adopted, the effect thereof on Registrant's
operations.
ITEM 2. PROPERTIES
The Company's executive office is located at 134 North First Street, Albemarle,
North Carolina and the Company leases a facility at 130-132 North First Street
in Albemarle, which is sub-leased to a local non-profit organization and to the
Bank's subsidiary, The Strategic Alliance Corporation.
Bank of Stanly's Main Office is located at 167 North Second Street, Albemarle,
North Carolina. The Bank has leased a portion of the Main Office facility since
it opened in 1984, and its administrative and executive offices occupy an
adjoining building, purchased in 1991. The Bank purchased a commercial building
and parking lot adjacent to its Main Office in Albemarle in 1988, which it holds
for future expansion.
Bank of Stanly owns its other banking locations at 710 North First Street, which
houses the Village Branch opened in June 1984; its East Albemarle Branch at 800
Highway 24-27 Bypass acquired in 1988, both located in Albemarle. It also owns a
branch office located at 107 S. Main Street in Norwood, North Carolina acquired
in 1987; and, a branch office located at 624 N. Main Street in Oakboro, North
Carolina opened in 1993.
The Company acquired the banking office occupied by Anson Bank & Trust Co. at
211 S. Green Street, Wadesboro, NC through its January 2000 acquisition of that
subsidiary.
All of the Bank's existing offices are freestanding, fully equipped and have
adequate parking and drive-up banking facilities, with the exception of the Main
Office in Albemarle, which does not have a drive-up facility.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor the Banks, nor any of their properties are subject to
any legal proceedings other than ordinary routine litigation incidental to their
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during the
fourth quarter of 1999.
10
<PAGE>
PART II
ITEMS 5 THROUGH 7.
Incorporated by reference to the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 1999.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEMS 9 THROUGH 12.
Incorporated by reference to the Company's definitive proxy statement dated
April 7, 2000.
11
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS. The following consolidated financial
statements of the Registrant are incorporated herein by reference
from the indicated pages of the Registrant's 1999 Annual Report to
Shareholders.
(2) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules are omitted as substantially all
the required information is contained in the Registrant's
consolidated financial statements listed above which are
incorporated herein by reference or is not applicable.
(3) EXHIBITS.
The following exhibits are filed herewith or incorporated herein by
reference.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3 (a) * Registrant's Articles of Incorporation
3 (b) * Registrant's By-laws
10 * Incentive Stock Option Plan, as amended * *
13 1999 Annual Report to Shareholders (filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23 ** Employee Stock Ownership Plan and Trust (filed herewith)
27 Financial Data Schedule (filed herewith)
99 Registrant's definitive proxy statement * * *
* Incorporated by reference from exhibits to Registrant's Registration
Statement on Form S-4 (Reg. No. 33-58882)
** Denotes a management contract or compensatory plan or arrangement.
*** To be filed with the Commission pursuant to Rule 14a-6 (b).
(B) REPORTS ON FORM 8-K.
The Registrant did not file a Current Report on Form 8-K during
the three months ended December 31, 1999.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UWHARRIE CAPITAL CORP
March 21, 2000 By: /s/
-----------------------------
Roger L. Dick,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ March 21, 2000
- -------------------------------------
Roger L. Dick
Chief Executive Officer
/s/ March 21, 2000
- -------------------------------------
Ronald B. Davis
President
/s/ March 21, 2000
- -------------------------------------
Christopher A. Whitfield,
Executive Vice President & CFO
/s/ March 21, 2000
- -------------------------------------
Cynthia H. Beane, Director
/s/ March 21, 2000
- -------------------------------------
Joe S. Brooks, Director
/s/ March 21, 2000
- -------------------------------------
Ronald T. Burleson, Director
/s/ March 21, 2000
- -------------------------------------
Bill C. Burnside, D.D.S., Director
/s/ March 21, 2000
- -------------------------------------
Gail C. Burris, Director
13
<PAGE>
/s/ March 21, 2000
- -------------------------------------
David M. Jones, D.V.M., Director
/s/ March 21, 2000
- -------------------------------------
Kyle H. Josey, Director
/s/ March 21, 2000
- -------------------------------------
James F. Link, D.V.M., Director
/s/ March 21, 2000
- -------------------------------------
Joyce H. Little, Director
/s/ March 21, 2000
- -------------------------------------
W. Chester Lowder, Director
/s/ March 21, 2000
- -------------------------------------
Buren Mullis, Director
/s/ March 21, 2000
- -------------------------------------
John P. Murray, M.D., Director
/s/ March 21, 2000
- -------------------------------------
Kent E. Newport, Director
/s/ March 21, 2000
- -------------------------------------
Catherine A. Pickler, Director
/s/ March 21, 2000
- -------------------------------------
George T. Reaves, Director
/s/ March 21, 2000
- -------------------------------------
A. James Russell, Director
/s/ March 21, 2000
- -------------------------------------
B. A. Smith, Jr., Director
/s/ March 21, 2000
- -------------------------------------
Douglas V. Waddell, Director
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
13 1999 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Employee Stock Ownership Plan and Trust
27 Financial Data Schedule
EXHIBIT 13
<PAGE>
UWHARRIE CAPITAL CORP
1999
ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
[This page left blank intentionally]
2
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
DESCRIPTION OF BUSINESS
Uwharrie Capital Corp (the "Company") is a North Carolina bank holding company.
The Company was organized on July 1, 1993 to become the bank holding company for
the Bank of Stanly (the "Bank"), a North Carolina commercial bank chartered on
September 28, 1983, and its two wholly-owned subsidiaries, The Strategic
Alliance Corporation ("Strategic Alliance") and BOS Agency, Inc. ("BOS Agency").
The Bank also owns a 50% interest in Corporate Data Services Inc., a North
Carolina corporation that provides operations and data processing services.
The Company formed a new subsidiary, Strategic Investment Advisors, Inc., during
1999 to provide investment advisory and asset management services.
On January 19, 2000, the Company completed its acquisition of Anson BanCorp,
Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North
Carolina savings bank charter and became a wholly-owned subsidiary of Uwharrie
Capital Corp as Anson Bank & Trust Co.
Uwharrie Capital Corp, Bank of Stanly and its subsidiaries and Strategic
Investment Advisors, Inc. are located in Stanly County, which has been the
Company's primary service area. Anson Bank & Trust Co. is located in Anson
County. The Company intends to prudently expand its service area to include the
entire Uwharrie Lakes Region.
Bank of Stanly engages in retail and commercial banking, with three banking
offices in the City of Albemarle, one office in the Town of Norwood, and one
office in the Town of Oakboro. Through its five branch locations in Stanly
County, the Bank provides a wide range of banking services including deposit
accounts, commercial, consumer, home equity and residential mortgage loans, safe
deposit boxes, and electronic banking services.
Depository services offered include personal and commercial checking, savings,
money market, certificates of deposit accounts and individual retirement
accounts all tailored to meet customers' needs. The Bank provides fixed and
variable rate loans, which include mortgage, home equity, lines of credit,
consumer and commercial loans. The Bank also offers 24-Hour Telephone Banking,
providing customers the convenience of access to account information, rate
information and accessibility of funds transfers between accounts. Other
services include MasterCard(R) credit cards and a Visa(R) Check Card which
functions as a point-of-sale (POS) and automated teller machine (ATM) card.
Customers can use the Check Card for purchases at any merchant accepting Visa
and at any ATM displaying the HONOR(R) and CIRRUS(R) networks regionally and
worldwide, respectively.
Anson Bank & Trust Co. will provide the same level of banking services to
customers in Wadesboro and surrounding Anson County.
The Strategic Alliance Corporation and BOS Agency provide broker-dealer services
and insurance products, respectively. Strategic Alliance is a broker-dealer and
member of the National Association of Securities Dealers, Inc. ("NASD").
Strategic Investment Advisors Inc., registered as an investment advisor with the
states of North Carolina and Florida, provides portfolio management services to
its customers. BOS Agency serves the risk management needs of customers and
provides life, long-term health care, Medicare supplement and other insurance
products.
THE STRATEGIC ALLIANCE CORPORATION. MEMBER NASD/SIPC.
PRODUCTS OFFERED THROUGH STRATEGIC ALLIANCE ARE NOT FDIC INSURED, ARE NOT
OBLIGATIONS OF ANY BANK, ARE NOT GUARANTEED BY ANY BANK, AND MAY INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
3
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Percent
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998 Increase
- -------------------------------------------------------- ----------- ----------- ---------
<S> <C> <C> <C>
FOR THE YEAR:
Net Income $ 1,152 $ 1,305 (11.7)%
Net income per common share - basic (1): $ .22 $ .28 (21.4)%
Cash dividends paid (2):
Total 3 - N/A
Per common share - - N/A
Weighted average common shares outstanding - basic (1): 5,259,677 4,738,477 11.0 %
- -------------------------------------------------------- ----------- ----------- ---------
AT YEAR-END:
Total assets $ 192,717 $ 167,386 15.1 %
Total earning assets 176,206 158,807 11.0 %
Loans, net of unearned income 140,095 132,301 5.9 %
Total interest-bearing liabilities 157,750 134,729 17.1 %
Shareholders' equity 17,061 15,698 8.7 %
Book value per share (1) $ 3.08 $ 3.05 1.0 %
- -------------------------------------------------------- ----------- ----------- ---------
AVERAGES FOR THE YEAR:
Total assets $ 172,811 $ 153,006 12.9 %
Total earning assets 163,489 145,980 12.0 %
Loans, net of unearned income 134,044 117,442 14.1 %
Total interest-bearing liabilities 138,503 123,679 12.0 %
Shareholders' equity 16,632 13,497 23.2 %
- -------------------------------------------------------- ----------- ----------- ---------
FINANCIAL RATIOS (IN PERCENTAGE):
Return on average assets .67% .85%
Return on average shareholders' equity 6.93% 9.67%
Average equity to average assets 9.62% 8.82%
Net interest margin (fully tax equivalent basis) 4.61% 4.71%
Allowance as % of loans at year-end .72% .88%
Allowance as % of nonperforming loans 316.02% 1,714.86%
Nonperforming assets to loans .31% .12%
Net charge-offs to average loans .28% .06%
Dividend payout ratio N/A N/A
- -------------------------------------------------------- ----------- ----------- ---------
</TABLE>
(1) Net income per share, book value per share, weighted average shares
outstanding and shares outstanding at year-end have been adjusted to
reflect the 3% stock dividend in 1999 and the 100% stock dividend issued in
1998.
(2) Includes cash paid in lieu of fractional shares on stock dividends.
* * * *
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
It is the philosophy of the Company to promote a strong local shareholder base;
therefore, the Company's common stock is neither listed nor traded on a
broker-dealer market. Management of the Company makes every reasonable effort to
match willing buyers with willing sellers as they become known for the purpose
of private negotiations for the purchase or sale of the Company's common stock.
In addition, Uwharrie Capital Corp has adopted a program of on-going open market
purchases of shares of the Company's stock. The combination of private trades
and Company purchases has provided adequate liquidity for the investors of
Uwharrie Capital Corp stock without the cost of brokerage fees.
Approximately 199,554 shares of stock were traded during 1999. The Company
issued a 3% stock dividend in 1999 and a 100% stock dividend in 1998. As of
December 31, 1999, Uwharrie Capital Corp had 2,111 shareholders of record.
4
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Uwharrie Capital Corp
Albemarle, North Carolina
We have audited the accompanying consolidated balance sheets of UWHARRIE CAPITAL
CORP AND SUBSIDIARIES (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UWHARRIE CAPITAL
CORP AND SUBSIDIARIES as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
DIXON ODOM PLLC
SANFORD, NORTH CAROLINA
JANUARY 21, 2000
5
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,315,758 $ 4,370,422
Interest-bearing deposits with banks 383,996 481,408
Federal funds sold - 1,950,000
Investment securities available for sale, at fair value 35,726,571 24,074,852
Loans 140,095,351 132,300,959
Less allowance for loan losses 1,002,856 1,170,185
---------------- ----------------
Net loans 139,092,495 131,130,774
Premises and equipment, net 3,357,642 3,026,293
Interest receivable 1,103,592 941,285
Other assets 5,736,518 1,411,321
---------------- ----------------
Total Assets $192,716,572 $167,386,355
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand, noninterest-bearing $ 17,062,733 $ 16,136,838
Money market and NOW accounts 32,442,203 27,919,823
Savings accounts 34,000,937 34,862,577
Time deposits, $100,000 and over 18,484,228 26,607,783
Other time deposits 32,832,417 33,719,175
---------------- ----------------
Total deposits 134,822,518 139,246,196
Federal funds purchased and securities sold under
repurchase agreements 5,580,887 3,510,821
Other short-term borrowed funds 16,158,000 1,284,000
Long-term debt 18,251,005 6,825,257
Interest payable 219,929 189,400
Other liabilities 623,446 633,071
---------------- ----------------
Total Liabilities 175,655,785 151,688,745
---------------- ----------------
Commitments (Note 10)
Shareholders' Equity
Common stock, $1.25 par value
6,000,000 shares authorized; shares issued and
outstanding of 5,545,607 and 5,003,107, respectively 6,932,009 6,253,885
Additional paid-in capital 6,319,384 4,193,526
Common stock subscriptions receivable (204,155) (256,898)
Unearned ESOP compensation (1,167,954) -
Undivided profits 5,406,374 5,143,724
Accumulated other comprehensive income (224,871) 363,373
---------------- ----------------
Total Shareholders' Equity 17,060,787 15,697,610
---------------- ----------------
Total Liabilities and Shareholders' Equity $192,716,572 $167,386,355
================ ================
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
6
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $11,157,258 $10,145,545
Investment securities
U. S. Treasury 154,260 319,062
U. S. Government agencies and corporations 1,274,906 903,250
State and political subdivisions 326,994 325,289
Other 76,014 76,615
Interest-bearing deposits with banks and federal funds sold 38,068 128,443
-------------- ---------------
Total Interest Income 13,027,500 11,898,204
-------------- ---------------
INTEREST EXPENSE
Time deposits, $100,000 and over 1,041,429 836,741
Other interest-bearing deposits 3,591,304 3,650,128
Federal funds purchased and securities sold under repurchase
agreements 196,752 200,058
repurchase agreements
Other short-term borrowed funds 242,190 107,176
Long-term debt 600,799 397,705
-------------- ---------------
Total Interest Expense 5,672,474 5,191,808
-------------- ---------------
NET INTEREST INCOME 7,355,026 6,706,396
Provision for loan losses 210,000 119,280
-------------- ---------------
Net Interest Income After Provision For Loan Losses 7,145,026 6,587,116
-------------- ---------------
NONINTEREST INCOME
Service charges on deposit accounts 1,059,802 952,438
Other service fees and commissions 786,109 510,813
Gains (losses) on securities sold (528,764) (8,051)
Other income 111,662 64,744
-------------- ---------------
Total Noninterest Income 1,428,809 1,519,944
-------------- ---------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,779,370 3,361,494
Net occupancy expense 288,906 282,626
Equipment expense 658,803 472,776
Data processing costs 476,249 466,567
Other operating expense 1,696,782 1,630,875
-------------- ---------------
Total Noninterest Expense 6,900,110 6,214,338
-------------- ---------------
Income before income taxes 1,673,725 1,892,722
Income taxes 521,341 587,261
-------------- ---------------
Net Income $ 1,152,384 $ 1,305,461
============== ===============
NET INCOME PER COMMON SHARE
Basic $ .22 $ .28
Diluted .22 .27
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 5,259,677 4,738,477
Diluted 5,353,366 4,859,187
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
7
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Additional Common Stock Unrealized
------------------------- Paid-in Subscriptions ESOP Undivided
Shares Amount Capital Receivable Compensation Profits
--------- ------------ ------------ ------------ ------------ ------------
<S> C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 2,282,078 $ 2,852,598 $ 5,524,178 $ -- $ -- $ 3,838,263
Comprehensive income
Net income -- -- -- -- -- 1,305,461
Other comprehensive
income, net of tax -- -- -- -- -- --
Net increase in fair
value of securities
available for sale -- -- -- -- -- --
Total comprehensive income
Common stock issued pursuant to:
Sale of common stock 427,205 534,006 1,568,648 (268,840) -- --
100% stock dividend 2,294,746 2,868,433 (2,868,433) -- -- --
Stock options exercised 23,319 29,149 72,208 -- -- --
Repurchase of common stock (24,241) (30,301) (103,075) -- -- --
Collections of subscriptions
receivable -- -- -- 11,942 -- --
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 5,003,107 6,253,885 4,193,526 (256,898) -- 5,143,724
Comprehensive income
Net income -- -- -- -- -- 1,152,384
Other comprehensive
income, net of tax -- -- -- -- -- --
Net decrease in
fair value of securities
available for sale -- -- -- -- -- --
Total comprehensive income 564,140 -- -- -- -- --
Common stock issued pursuant to:
Sale of common stock 501,123 626,404 2,100,816 -- (1,199,995) --
Release of ESOP shares -- -- -- -- 32,041 --
3% stock dividend 161,135 201,418 684,825 -- -- (886,243)
Stock options exercised 56,341 70,426 88,638 -- -- --
Repurchase of common stock (176,099) (220,124) (748,421) -- -- --
Dividends paid - fractional
shares -- -- -- -- -- (3,491)
Collections of subscriptions
receivable -- -- -- 52,743 -- --
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 5,545,607 $ 6,932,009 $ 6,319,384 $ (204,155) $ (1,167,954) $ 5,406,374
========= ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income Total
------------ ------------
<S> <C> <C>
Balance, January 1, 1998 $ 319,097 $ 12,534,136
Comprehensive income
Net income -- 1,305,461
Other comprehensive
income, net of tax
Net increase in fair
value of securities
available for sale 44,276 44,276
---------
Total comprehensive income -- 1,349,737
---------
Common stock issued pursuant to:
Sale of common stock -- 1,833,814
100% stock dividend -- --
Stock options exercised -- 101,357
Repurchase of common stock -- (133,376)
Collections of subscriptions
receivable -- 11,942
------------ ------------
Balance, December 31, 1998 363,373 15,697,610
Comprehensive income
Net income -- 1,152,384
Other comprehensive
income, net of tax
Net decrease in
fair value of securities
available for sale (588,244) (588,244)
-----------
Total comprehensive income 564,244
-----------
Common stock issued pursuant to:
Sale of common stock -- 1,527,225
Release of ESOP shares -- 32,041
3% stock dividend -- --
Stock options exercised -- 159,064
Repurchase of common stock -- (968,545)
Dividends paid - fractional
shares -- (3,491)
Collections of subscriptions
receivable -- 52,743
------------ ------------
Balance, December 31, 1999 $ (224,871) $ 17,060,787
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
8
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,152,384 $ 1,305,461
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 345,795 289,904
Amortization (accretion) of security premiums (discounts) (12,510) 8,996
Provision for loan losses 210,000 119,280
Deferred income tax expense 67,000 46,065
Net realized (gain) loss on available for sale securities 528,764 8,051
Gain on sale of mortgage loans (42,183) (20,650)
Loss on sale of foreclosed properties - 14,288
Release of ESOP shares 32,041 -
Net change in interest receivable (162,307) (10,782)
Net change in other assets (491,481) (242,906)
Net change in interest payable 30,529 18,369
Net change in other liabilities 109,110 48,989
--------------- ---------------
Net Cash Provided By Operating Activities 1,767,142 1,585,065
--------------- ---------------
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits with banks 97,412 (297,897)
Net (increase) decrease in federal funds sold 1,950,000 (1,950,000)
Proceeds from sales of securities available for sale 6,814,678 1,460,718
Proceeds from maturities of securities available for sale 8,131,671 5,620,203
Purchase of securities available for sale (11,919,185) (2,992,918)
Net increase in loans (27,761,857) (25,734,546)
Proceeds from sales of loans 1,039,102 3,104,684
Purchase of premises and equipment (677,144) (972,460)
Increase in equity investments (1,125,000) -
Proceeds from sales of foreclosed real estate - 34,211
Other (84,615) -
--------------- ---------------
Net Cash Used By Investing Activities (23,534,938) (21,728,005)
--------------- ---------------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (4,423,678) 22,340,872
Net increase (decrease) in federal funds purchased 2,725,000 (1,400,000)
Net decrease in securities sold under repurchase agreements (654,934) (536,509)
Net increase (decrease) in other short-term borrowed funds 14,874,000 (1,278,058)
Proceeds from long-term advances from Federal Home Loan Bank 13,025,000 2,000,000
Repayment of long-term advances from Federal Home Loan Bank (1,599,252) (2,749,251)
Repurchases of common stock (968,545) (133,376)
Proceeds from issuance of common stock 1,739,032 1,947,113
Dividends paid (3,491) -
---------------
---------------
Net Cash Provided By Financing Activities 24,713,132 20,190,791
--------------- ---------------
Increase in Cash and Due from Banks 2,945,336 47,851
Cash and due from banks at beginning of year 4,370,422 4,322,571
--------------- ---------------
Cash And Due From Banks At End Of Year $ 7,315,758 $ 4,370,422
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 5,641,944 $ 5,173,440
Income taxes paid 649,000 579,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Loans transferred to foreclosed real estate 28,562 -
Net increase (decrease) in fair value of securities available for sale (588,244) 44,726
Loans securitized into investment securities 18,621,779 4,260,381
Increase in receivable from sales of securities available for sale 2,460,406 -
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
9
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Uwharrie Capital Corp ("the Company") was incorporated under North Carolina law
for the purpose of becoming the holding company for Bank of Stanly ("the Bank").
Regulatory approval was initially sought in March 1993, and was subsequently
received. On July 1, 1993, the Bank became a wholly-owned subsidiary of the
Company through a one-for-one exchange of the common stock of the Bank for
common stock of the Company.
Bank of Stanly was incorporated on September 28, 1983, under the laws of the
State of North Carolina and began operations on January 26, 1984 in Albemarle,
North Carolina. Deposits with the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank is under regulation of both the FDIC
and the North Carolina State Banking Commission. Through its five branch
locations in Stanly County, the Bank provides a wide range of deposit accounts,
commercial, consumer, home equity and residential mortgage loans, safe deposit
boxes and automated banking.
In 1987, the Bank established a wholly-owned subsidiary, BOS Agency, Inc. ("BOS
Agency"), which engages in investment and insurance product sales. In 1989, the
Bank established a second wholly-owned subsidiary, BOS Financial Corporation,
for the purpose of conducting business as a broker/dealer in securities. During
1993, BOS Financial Corporation changed its name to The Strategic Alliance
Corporation ("Strategic Alliance") and was licensed as a broker/dealer by the
National Association of Securities Dealers.
The Company formed a new subsidiary, Strategic Investment Advisors, Inc., during
1999 to provide investment advisory and asset management services. This
subsidiary is registered as an investment advisor with the states of North
Carolina and Florida.
On January 19, 2000, the Company completed its acquisition of Anson BanCorp,
Inc. and its subsidiary, Anson Savings Bank. The savings bank retained its North
Carolina savings bank charter and became a wholly-owned subsidiary of Uwharrie
Capital Corp as Anson Bank & Trust Co. See Note 15.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Bank and its wholly-owned subsidiaries, BOS Agency and Strategic Alliance. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination of
the allowance for losses on loans.
Cash Equivalents
For the purpose of presentation in the consolidated statements of cash flows,
cash and cash equivalents are defined as those amounts included in the balance
sheet caption "Cash and due from banks."
10
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities Held To Maturity
Securities classified as held to maturity are debt securities the Company has
both the intent and ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic conditions. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
Securities Available for Sale
Available-for-sale securities consist of bonds and notes not classified as
trading securities nor as held-to-maturity securities. Unrealized holding gains
and losses on available-for-sale securities are reported as a net amount in
other comprehensive income. Gains and losses on the sale of available-for-sale
securities are determined using the specific-identification method. Declines in
the fair value of individual held-to-maturity and available-for-sale securities
below their cost that are other than temporary would result in write-downs of
the individual securities to their fair value. Such write-downs would be
included in earnings as realized losses. Premiums and discounts are recognized
in interest income using the interest method over the period to maturity.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans. Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the related loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
Allowance for Loan Losses
The provision for loan losses is based upon management's estimate of the amount
needed to maintain the allowance for loan losses at an adequate level. In making
the evaluation of the adequacy of the allowance for loan losses, management
gives consideration to current and anticipated economic conditions, statutory
examinations of the loan portfolio by regulatory agencies, delinquency
information and management's internal review of the loan portfolio. Loans are
considered impaired when it is probable that all amounts due under the
contractual terms of the loan will not be collected. The measurement of impaired
loans that are collateral dependent is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
or upon the fair value of the collateral if readily determinable. If the
recorded investment in the loan exceeds the measure of fair value, a valuation
allowance is established as a component of the allowance for loan losses. While
management uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ substantially
from the assumptions used in making the evaluations. In addition, regulatory
examiners may require the Bank to recognize changes to the allowance for loan
losses based on their judgments about information available to them at the time
of their examination.
11
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreclosed Real Estate
Real estate properties acquired through foreclosure or other proceedings are
initially recorded at fair value upon foreclosure, establishing a new cost
basis. After foreclosure, valuations are performed and the foreclosed property
is adjusted to the lower of cost or fair market value of the properties, less
costs to sell. Any write-down at the time of transfer to foreclosed properties
is charged to the allowance for loan losses. Subsequent write-downs are charged
to other expenses. Property is evaluated regularly to ensure that the recorded
amount is supported by its current fair market value.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Land is
carried at cost. Additions and major replacements or betterments which extend
the useful lives of premises and equipment are capitalized. Maintenance, repairs
and minor improvements are expensed as incurred. Depreciation is computed
principally by the straight-line method over estimated useful lives, except in
the case of leasehold improvements, which are amortized over the term of the
leases, if shorter. Useful lives range from five years for furniture and
fixtures to ten to thirty years for leasehold improvements and buildings,
respectively. Upon retirement or other disposition of the assets, the cost and
the related accumulated depreciation are removed from the accounts and any gains
or losses are reflected in income.
Federal Home Loan Bank Stock
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta ("FHLB"). This investment is carried at cost.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company currently accounts for its stock-based compensation
plans using the accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees." Since the Company is not
required to adopt the fair value based recognition provisions prescribed under
SFAS No. 123, it has elected only to comply with the disclosure requirements set
forth in the Statement, which include disclosing pro forma net income and net
income per share as if the fair value based method of accounting had been
applied. (See Note 13.)
Income Taxes
The Company and its subsidiaries file a consolidated Federal income tax return
and separate North Carolina income tax returns. The provision for income taxes
in the accompanying financial statements is provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
12
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the consolidated
balance sheets, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. Statement No.
107 excludes certain financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying market value nor liquidation value of the Company.
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
CARRYING AMOUNTS APPROXIMATE FAIR VALUES for the following
instruments:
Cash and due from banks
Interest-bearing deposits with banks
Federal funds sold
Accrued interest receivable and payable
Variable rate loans that reprice frequently where no
significant change in credit risk has occurred
Variable rate money market, demand, NOW and savings accounts
Variable rate time deposits
Federal funds purchased and securities sold under repurchase
agreements Short-term borrowed funds
QUOTED MARKET PRICES, where available, or if not available, based
on quoted market prices of comparable instruments for the
following:
Securities available for sale
DISCOUNTED CASH FLOWS using interest rates currently being
offered on instruments with similar terms and with similar
credit quality:
Long-term debt
All loans, except variable rate loans described above Fixed
rate time deposits
Investment in Joint Venture
During 1992, the Company entered into a joint venture agreement to form
Corporate Data Services, Inc. ("CDS"), a company that provides operations and
data processing services for community banks. The Company had a 50% ownership
interest at December 31, 1999 and 1998. The Company utilizes the equity method
to account for its ownership in the joint venture.
Comprehensive Income
Comprehensive income includes net income and the unrealized gain or loss on
securities available for sale, net of applicable deferred taxes.
13
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Common Share
Basic earnings per share ("EPS") excludes dilution and it is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Basic and dilutive
earnings per share have been computed based upon net income as presented in the
accompanying statements of income divided by the weighted average number of
common shares outstanding, or assumed to be outstanding, after retroactively
adjusting for the two-for-one stock split in 1998 as summarized below.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Weighted average number of common shares used
in computing basic earnings per share 5,259,677 4,738,477
Effect of dilutive stock options 93,689 120,710
----------- -----------
Weighted average number of common shares and
dilutive potential common shares used in
computing diluted earnings per share 5,353,366 4,859,187
=========== ===========
- --------------------------------------------------------------------------------
</TABLE>
NOTE 2 - INVESTMENT SECURITIES
Carrying amounts and fair values of securities available for sale are summarized
below:
<TABLE>
<CAPTION>
-------------- ------------- -------------- ----------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1999 Cost Gains Losses Value
-------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 2,000,264 $ - $ 12,139 $ 1,988,125
U.S. Agency 1,000,687 - 2,874 997,813
State and political 13,935,718 67,978 - 14,003,696
Mortgage-backed securities 16,500,183 - 417,231 16,082,952
Corporate bonds 1,014,714 - 45,027 969,687
-------------- ------------- -------------- ----------------
Total debt securities 34,451,566 67,978 477,271 34,042,273
FHLB and other stock 1,644,373 39,925 - 1,684,298
-------------- ------------- -------------- ----------------
Total securities available for sale $ 36,095,939 $ 107,903 $ 477,271 $35,726,571
============== ============= ============== ================
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1998 Cost Gains Losses Value
- -----------------
-------------- ------------- -------------- ----------------
U.S. Treasury $ 4,981,102 $ 27,318 $ - $ 5,008,420
U.S. Agency 1,002,153 6,987 - 1,009,140
State and political 5,151,310 375,172 - 5,526,482
Mortgage-backed securities 11,284,446 152,219 - 11,436,665
Corporate bonds - - - -
-------------- ------------- -------------- ----------------
Total debt securities 22,419,011 561,696 - 22,980,707
FHLB and other stock 1,058,973 35,172 - 1,094,145
-------------- ------------- -------------- ----------------
Total securities available for sale $ 23,477,984 $ 596,868 $ - $24,074,852
============== ============= ============== ================
</TABLE>
14
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
At December 31, 1999 and 1998, there were no debt securities being held to
maturity.
The amortized cost and fair value of securities available for sale at December
31, 1999, by contractual maturities, are as follows:
<TABLE>
<CAPTION>
After After
In One One Year Five Years After
Year Through Through Ten
or Less Five Years Ten Years Years Total
-------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
AMORTIZED COST
- --------------
U.S. Treasury $ 999,947 $1,000,317 $ - $ - $2,000,264
U.S. Agency 1,000,687 - - - 1,000,687
State and political 265,057 903,647 2,395,492 10,371,522 13,935,718
Mortgage-backed securities - - 2,431,607 14,068,576 16,500,183
Corporate bonds - - - 1,014,714 1,014,714
-------------- -------------- -------------- --------------- --------------
Total $2,265,691 $1,903,964 $4,827,099 $25,454,812 $34,451,566
============== ============== ============== =============== ==============
FAIR VALUE
- ----------
U.S. Treasury $1,000,000 $988,125 $ - $ - $ 1,988,125
U.S. Agency 997,813 - - - 997,813
State and political 269,282 923,473 2,410,329 10,400,612 14,003,696
Mortgage-backed securities - - 2,385,092 13,697,860 16,082,952
Corporate bonds - - - 969,687 969,687
-------------- -------------- -------------- --------------- --------------
Total $2,267,095 $1,911,598 $4,795,421 $25,068,159 $34,042,273
============== ============== ============== =============== ==============
WEIGHTED
AVERAGE YIELDS
- --------------
U.S. Treasury 5.64% 5.03% - - 5.34%
U.S. Agency 5.48% - - - 5.48%
State and political (1) 9.84% 9.11% 9.10% 8.65% 8.78%
Mortgage-backed securities - - 7.00% 6.97% 6.97%
Corporate bonds - - - 6.98% 6.98%
---------------- ---------------- ---------------- ---------------- ----------------
Total 6.07% 7.00% 8.06% 7.67% 7.58%
================ ================ ================ ================ ================
</TABLE>
(1) Yield on tax exempt bonds computed on a tax-equivalent basis.
15
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Results from sales of securities available for sale for the years ended December
31, 1999 and 1998 are as follows:
1999 1998
--------------- --------------
Gross proceeds from sales $9,275,084 $1,460,718
=============== ==============
Realized gains from sales $ 2,624 $ -
Realized losses from sales (531,388) (8,051)
--------------- --------------
Net realized gains (losses) $(528,764) $ (8,051)
=============== ==============
At December 31, 1999 and 1998, securities available for sale with a carrying
amount of $7,992,415 and $8,752,221 respectively, were pledged as collateral on
public deposits and for other purposes as required or permitted by law.
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
The composition of net loans as of December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- -----------------------------------
Percent Percent
Amount of Total Amount of Total
---------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Commercial $23,672,594 17.02% $16,254,896 12.40%
Real estate - construction 5,226,738 3.76% 3,799,739 2.90%
Real estate - residential 65,634,395 47.19% 64,207,255 48.96%
Real estate - commercial 29,165,969 20.97% 28,523,091 21.75%
Consumer loans 16,445,989 11.82% 19,469,404 14.85%
Other loans 15,700 0.01% 57,790 0.04%
---------------- ------------- ---------------- ---------------
140,161,385 100.77% 132,312,175 100.90%
Deduct:
Allowance for loan losses (1,002,856) (0.72%) (1,170,185) (0.89%)
Unearned net loan fees (66,034) (0.05%) (11,216) (0.01%)
---------------- ------------- ================ ---------------
Loans, net $139,092,495 100.00% $131,130,774 100.00%
================ ============= ================ ===============
</TABLE>
Although the Bank's loan portfolio is diversified, there is a concentration of
mortgage real estate loans, primarily one to four family residential mortgage
loans, which represent 47.19% of net loans. Commercial loans, secured primarily
by real estate, to finance manufacturing buildings, shopping center locations,
commercial buildings and equipment comprise 20.97% of net loans. There is not a
concentration of a particular type of credit in this group of commercial loans.
16
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (CONTINUED)
An analysis of fixed-rate loan maturities and repricing frequencies of
variable-rate loans as of December 31, 1999 follows:
Fixed-rate loans with a maturity of:
Three months or less $2,403,721
Over three months through twelve months 10,432,443
Over one year through five years 31,678,393
Over five years 26,451,411
----------------
Total fixed-rate loans 70,965,968
----------------
Variable-rate loans with a repricing frequency of:
Three months or less 68,651,719
Over three months through twelve months 257,783
Over one year through five years 219,881
Over five years -
----------------
Total variable-rate loans 69,129,383
----------------
Total loans $140,095,351
================
Impaired loans consist of nonaccrual loans which totaled $317,341 and $68,238 at
December 31, 1999 and 1998, respectively, which had the effect of reducing net
income $13,983 in 1999 and $5,738 in 1998. Generally, when loans exceed 90 days
past due, they are placed in nonaccrual status. At December 31, 1999 and 1998,
loans past due 90 days and still accruing interest totaled $26,593 and $76,000,
respectively. Book value of foreclosed properties held as other real estate was
$113,562 and $85,000 in the respective periods. At December 31, 1999 and 1998,
the Company did not have any loans for which terms had been modified in troubled
debt restructuring.
The Company's loan policies are written to address each lending category,
specifically related to loan-to-value ratios and collateralization methods. This
takes into consideration economic and credit risk of lending areas and customers
associated with each category.
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1999
and 1998 are listed below:
1999 1998
--------------- --------------
Balance, beginning of year $ 1,170,185 $ 1,124,970
Charge offs:
Commercial 210,643 10,000
Real estate 151,292 22,000
Consumer 69,135 79,355
--------------- --------------
Total charge-offs 431,070 111,355
--------------- --------------
Recoveries:
Commercial 15,927 -
Real estate 16,214 -
Consumer 21,600 37,290
--------------- --------------
Total recoveries 53,741 37,290
--------------- --------------
Net charge-offs 377,329 74,065
Provision charged against income 210,000 119,280
--------------- --------------
Balance, end of year $ 1,002,856 $ 1,170,185
=============== ==============
17
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Ratios relative to the allowance for loan losses, nonperforming loans and net
charge-offs for the years ended December 31, 1999 and 1998 are reflected below:
1999 1998
------- --------
ALLOWANCE AND LOSS RATIOS
Allowance for loan losses to loans at year-end .72% .88%
Allowance for loan losses to non-performing loans 316.02 1,714.86
Net charge-offs to average loans .28 .06
NONPERFORMING ASSETS TO:
Loans and foreclosed properties .31% .12%
Total assets .22 .09
The method used for rating the loan portfolio provides for early detection of
problem loans, and an adequate loan loss provision is established quarterly for
loans considered to be loss, doubtful and substandard. This identification
process begins with loans previously identified by examiners and also includes
loans from management's assessment of credit reviews, payment history, loan to
value ratio and weakness in credit. Changes in the ratio of the allowance for
loans losses to total loans and nonperforming loans reflects this assessment.
The allocation of the allowance for loan losses applicable to each category of
loans at December 31, 1999 and 1998 is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------ -----------------------------------------------
Percent of Percent Percent of Percent
Allowance of Loans Allowance of Loans
Amount of to Total to Gross Amount of to Total to Gross
Allowance Allowance Loans Allowance Allowance Loans
------------ ------------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 295,873 29.50% 16.89% $ 144,400 12.34% 12.29%
Real estate -
construction 12,490 1.25% 3.73% 19,759 1.69% 2.87%
Real estate -
residential 195,035 19.45% 46.83% 621,867 53.14% 48.53%
Real estate -
commercial 226,481 22.58% 20.81% 188,984 16.15% 21.56%
Consumer 212,977 21.24% 11.73% 124,114 10.61% 14.71%
Other loans - -% .01% 301 0.03% 0.04%
Unallocated 60,000 5.98% -% 70,760 6.04% -
------------ ------------ ---------- ----------- ------------ -----------
Total $1,002,856 100.00% 100.00% $1,170,185 100.00% 100.00%
============ ============ ========== =========== ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
The major classes of premises and equipment and the total accumulated
depreciation at December 31, 1999 and 1998 are listed below:
1999 1998
--------------- ---------------
Land $ 806,902 $ 670,703
Buildings and improvements 2,286,153 2,176,530
Furniture and equipment 2,659,996 2,344,718
--------------- ---------------
5,753,051 5,191,951
Less accumulated depreciation 2,395,409 2,165,658
--------------- ---------------
$ 3,357,642 $ 3,026,293
=============== ===============
- --------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
The composition of deposits at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- --------------------------------
Percentage Percentage
Amount of total Amount of total
--------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Demand deposits $ 17,062,733 13% $ 16,136,838 12%
Money market and NOW accounts 32,442,203 24% 27,919,823 20%
Savings 34,000,937 25% 34,862,577 25%
Time deposits, $100,000 and over 18,484,228 14% 26,607,783 19%
Other time deposits 32,832,417 24% 33,719,175 24%
--------------- ------------- --------------- ------------
$ 134,822,518 100% $ 139,246,196 100%
=============== ============= =============== ============
</TABLE>
The maturities of fixed-rate time deposits at December 31, 1999 are reflected in
the table below.
Time
Deposits
$100,000 Other
and Over Time Deposits
--------------- ----------------
Remaining Maturities
Three months or less $4,612,176 $9,795,816
Three through twelve months 12,224,480 17,348,925
Over twelve months 1,647,572 5,687,676
--------------- ---------------
Total $18,484,228 $32,832,417
=============== ===============
- --------------------------------------------------------------------------------
19
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - SHORT-TERM BORROWED FUNDS
The following tables set forth certain information regarding the amounts,
year-end weighted average rates, average balances, weighted average rate, and
maximum month-end balances for short-term borrowed funds, at and during 1999 and
1998.
<TABLE>
<CAPTION>
1999 1998
-------------- -------------- --------------- -----------
Amount Rate Amount Rate
-------------- -------------- --------------- -----------
<S> <C> <C> <C> <C>
At year-end
Federal funds purchased $ 2,725,000 5.70% $ - - %
2,725,000
Securities sold under agreement
to repurchase 2,855,887 4.27% 3,510,821 3.93%
Master notes 2,958,000 4.55% 1,284,000 3.81%
Short-term advances from FHLB 13,200,000 4.34% - - %
-------------- ---------------
$21,738,887 4.63% $ 4,794,821 3.90%
============== ===============
1999 1998
-------------- -------------- --------------- -------------
Amount Rate Amount Rate
-------------- -------------- --------------- -------------
Average for the year
Federal funds purchased $ 984,356 5.68% $ 564,082 6.18%
Securities sold under agreement
to repurchase 3,626,385 3.88% 3,872,135 4.29%
Master notes 1,737,777 3.91% 1,689,967 4.66%
Short-term advances from FHLB 3,189,726 5.46% 592,055 5.75%
-------------- ---------------
$ 9,538,244 4.60% $ 6,718,239 4.67%
============== ===============
1999 1998
-------------- --------------
Maximum month-end balances
Federal funds purchased $2,725,000 $2,175,000
Securities sold under agreement
to repurchase 4,333,723 5,014,928
Master notes 2,958,000 2,352,399
Short-term advances from FHLB 13,200,000 2,500,000
</TABLE>
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions. Securities sold under agreement to repurchase represent
short-term borrowings collateralized by securities of the United States
government or its agencies.
The Bank has available lines of credit for federal funds in the amount of
$15,500,000.
- --------------------------------------------------------------------------------
20
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - LONG-TERM DEBT
Advances from the Federal Home Loan Bank of Atlanta ("FHLB") with original
maturities of one year or more consist of the following at December 31, 1999 and
1998:
Maturing
Year Ending Interest
December 31 Rate (%) 1999 1998
---------------------- ----------- ------------ ----------
1999 6.07 - 6.94 $ - $1,574,252
2000 5.89 - 6.94 2,471,552 471,552
2001 5.80 - 6.94 3,346,552 1,346,552
2002 6.06 - 6.94 3,221,551 221,552
2003 6.41 - 6.45 125,000 125,000
2004 6.41 - 6.45 125,000 125,000
Thereafter 5.07 - 7.53 8,961,350 2,961,349
------------ ----------
$ 18,251,005 $6,825,257
============ ==========
Pursuant to collateral agreements with the FHLB, advances are collateralized by
all the Company's stock in FHLB and its qualifying first mortgage loans with
principal balances of $53,338,408 and $53,414,674 at December 31, 1999 and 1998,
respectively. Total credit available from the FHLB for short- or long-term
borrowing at December 31, 1999 was approximately $38,900,000.
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAX MATTERS
The components of income tax expense for the years ended December 31 are
summarized as follows:
1999 1998
---------------- ----------------
Current tax expense $ 454,341 $ 541,196
Deferred tax expense 67,000 46,065
---------------- ----------------
$521,341 $587,261
================ ================
The effective income tax rates for 1999 and 1998 were 31.1% and 31.0%,
respectively. The reasons for the differences between the effective rates and
income taxes computed at the statutory federal income tax rate of 34% for each
of those years are as follows:
1999 1998
------------ ------------
Income taxes at statutory federal rate $ 569,067 $ 643,525
Increases (decreases) resulting from:
Tax exempt interest, net (159,014) (141,313)
State income taxes, net of federal benefit 50,475 64,720
Other 60,813 20,329
------------ ------------
$ 521,341 $ 587,261
============ ============
21
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - INCOME TAX MATTERS (CONTINUED)
Deferred tax assets and liabilities arising from temporary differences at
December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets relating to:
Bad debt reserves $ 299,636 $ 365,861
Net unrealized loss on securities available for sale 144,497 -
Deferred compensation 44,307 47,584
----------- -----------
Total deferred tax asset 488,440 413,445
----------- -----------
Deferred tax liabilities relating to:
Net unrealized gain on securities available for sale - (233,495)
Depreciation (88,813) (73,011)
Deferred loans fees and costs (152,673) (172,543)
Basis difference in equity investment (31,200) (31,200)
Other (23,497) (21,931)
----------- -----------
Total deferred tax liability (296,183) (532,180)
----------- -----------
Net deferred tax asset (liability) $192,257 $(118,735)
=========== ===========
</TABLE>
The net deferred tax asset or liability is included in other assets or
liabilities, as appropriate, on the accompanying consolidated balance sheets.
- --------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, lines of credit and
standby letters of credit. These instruments involve elements of credit risk in
excess of amounts recognized in the accompanying financial statements.
The Bank's risk of loss with the unfunded loans and lines of credit or standby
letters of credit is represented by the contractual amount of these instruments.
The Bank uses the same credit policies in making commitments under such
instruments as it does for on-balance sheet instruments. The amount of
collateral obtained, if any, is based on management's credit evaluation of the
borrower. Collateral held varies, but may include accounts receivable,
inventory, real estate and time deposits with financial institutions. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. Credit
card commitments are unsecured. As of December 31, 1999 and 1998, outstanding
financial instruments whose contract amounts represent credit risk were as
follows:
1999 1998
------------------ ----------------
Commitments to extend credit $18,308,449 $16,828,682
Credit card commitments 4,805,631 3,863,616
Standby letters of credit 1,061,520 831,008
------------------ ----------------
$24,175,600 $21,523,306
================== ================
22
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Contingencies
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the financial
statements.
Financial Instruments With Concentration Of Credit Risk
The Bank makes commercial, agricultural, real estate mortgage, home equity and
consumer loans primarily in Stanly County. A substantial portion of the Bank's
customers' abilities to honor their contracts is dependent on the business
economy in Albemarle, North Carolina and surrounding areas. Although the Bank's
loan portfolio is diversified, there is a concentration of mortgage loans in the
portfolio. The Bank's policies for real estate lending require collateralization
with 20% equity or that the loan be underwritten to conform to Fannie-Mae
guidelines that would allow securitization and/or sale of the loans. Lending
policy for all loans requires that they be supported by sufficient cash flows.
Credit losses related to this real estate concentration are consistent with
credit losses experienced in the portfolio as a whole.
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTY TRANSACTIONS
In the normal course of business, certain directors and executive officers of
the Company, including their immediate families and companies in which they have
a 10% or more beneficial interest, were loan customers. Loans to such groups
totaled $7,307,703 and $6,041,429 at December 31, 1999 and 1998 as summarized
below.
1999 1998
--------------- ---------------
Balance, beginning $ 6,041,429 $ 5,621,593
Loans made 5,020,231 6,343,993
Payments received (4,107,133) (6,095,882)
Changes in composition 353,176 171,725
--------------- ---------------
Balance, ending $ 7,307,703 $ 6,041,429
=============== ===============
At December 31, 1999, the Bank had pre-approved but unused credit lines totaling
approximately $1,193,000 to executive officers, directors and their affiliates.
- --------------------------------------------------------------------------------
NOTE 12 - REGULATORY MATTERS
The Company and its subsidiary, Bank of Stanly, are subject to certain
requirements imposed by state and federal banking statutes and regulations.
These requirements, among other things, establish minimum levels of capital,
restrict the amount of dividends that may be distributed, and require that
reserves on deposit liabilities be maintained in the form of vault cash or
noninterest-bearing deposits with the Federal Reserve Bank.
North Carolina law prohibits Uwharrie Capital Corp from making any distributions
to shareholders, including the payment of cash dividends, which would render it
insolvent or unable to meet its obligations as they become due in the ordinary
course of business. At December 31, 1999, Uwharrie Capital Corp had consolidated
shareholders' equity of $17,060,787.
As a North Carolina banking corporation, the subsidiary bank may pay dividends
only out of undivided profits as determined pursuant to North Carolina General
Statutes Section 53-87. As of December 31, 1999, the Bank had undivided profits
of $8,227,113 and total capital of $14,322,923.
23
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - REGULATORY MATTERS (CONTINUED)
The Company and its subsidiary bank are subject to federal regulatory risk-based
capital guidelines for banks and bank holding companies. Both must meet specific
capital guidelines that involve quantitative measure of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices which measure Total and Tier 1 Capital to risk-weighted assets and
Tier 1 Capital to average assets. Quantitative measures established by
regulation to ensure capital adequacy and the Company's consolidated capital
ratios are set forth in the table below. The Company expects to meet or exceed
these minimums without altering current operations or strategy.
Required to be
----------------------
Adequately Well
Uwharrie Capital Corp Actual Capitalized Capitalized
----------------------------------------- ----------- ----------- ----------
As of December 31, 1999:
Total Capital (to risk-weighted assets) 14.1% 8% 10%
Tier 1 Capital (to risk-weighted assets) 13.4% 4% 6%
Tier 1 Capital (to average assets) 9.4% 4% 5%
As of December 31, 1998:
Total Capital (to risk-weighted assets) 14.5% 8% 10%
Tier 1 Capital (to risk-weighted assets) 13.5% 4% 6%
Tier 1 Capital (to average assets) 9.5% 4% 5%
----------------------------------------- ----------- ---------- -----------
As of December 31, 1999, the most recent notification from the FDIC categorized
the bank subsidiary as adequately capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.
For the reserve maintenance period in effect at December 31, 1999, the
subsidiary bank was required to maintain reserve balances in cash or on deposit
with the Federal Reserve Bank in the aggregate amount of $1,071,000 as reserves
on deposit liabilities.
- --------------------------------------------------------------------------------
NOTE 13 - STOCK MATTERS
Employee Stock Plans
During 1996, the Company adopted the 1996 Employment Stock Option Plan ("SOP")
and the Employee Stock Purchase Plan ("SPP"), under which options to purchase
shares of the Company's common stock may be granted to officers and eligible
employees. Options granted under the SOP are exercisable in established
increments according to vesting schedules, and will expire if not exercised
within ten years of the date of grant. Options granted under the SPP are fully
vested at the date of grant and expire if not exercised within two years of the
grant date.
24
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - STOCK MATTERS (CONTINUED)
Employee Stock Plans (Continued)
Activity under all option plans, reflecting the effects of the 3% and 100% stock
dividends issued in 1999 and 1998, respectively, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ -----------------------
Weighted- Weighted-
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Options outstanding at the
beginning of the year 438,371 $ 3.41 395,215 $ 2.84
Options granted 313,241 5.44 93,477 5.46
Options exercised (56,800) 2.75 (37,084) 2.73
Forfeitures ( 1,422) 4.54 (13,237) 2.78
---------- ----------- ---------- -----------
Options outstanding at the
end of the year 693,390 $ 4.38 438,371 $ 3.41
========== =========== ========== ===========
Options exercisable at the
end of the year 373,442 $ 4.13 263,348 $ 3.75
========== =========== ========== ===========
</TABLE>
At December 31, 1999, there were options for 693,390 shares outstanding with a
weighted-average remaining term of eight years and an exercise price of between
$2.69 and $5.50 per share. At December 31, 1999, 373,442 optioned shares were
exercisable at prices between $2.69 and $5.63 per share for a total of
$1,542,000. When options are exercised, par value of the shares issued is
recorded as an addition to common stock, and the remainder of the proceeds is
credited to additional paid-in capital. No income or expense has been recognized
in connection with the grant or exercise of these options.
As permitted by SFAS No. 123, the Company has continued to apply APB Opinion No.
25 for measurement of stock-based compensation in the accompanying financial
statements. If the Company had used the fair value based method of accounting
for stock-based compensation, operating results for 1999 and 1998 would have
been affected as set forth below:
As Reported Pro Forma
--------------------------- -----------------------
1999 1998 1999 1998
----------- ------------ --------- -----------
Net Income $1,152,384 $ 1,305,461 $966,065 $1,077,822
Net Income Per Share:
Basic $ .22 $ .28 $ .19 $ .23
Assuming Dilution $ .22 $ .27 $ .19 $ .22
25
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - STOCK MATTERS (CONTINUED)
Employee Stock Plans (Continued)
In determining the pro forma disclosures above, the fair value of options
granted was estimated on the date of grant using the Black-Scholes Option
Pricing Model using the following assumptions for 1999 and 1998, respectively; a
risk-free interest rate of 5.5% and 5.0%, a dividend yield of 0% and 0%, an
expected life equal to 60% and 70% of the term of the option, and a volatility
ratio of 14% and 20%. The effects of applying SFAS No. 123 in the above pro
forma disclosure are not indicative of future amounts. SFAS No. 123 does not
apply to awards granted prior to 1995.
Stock Repurchase Program
On February 21, 1995, the Company's Board of Directors authorized and approved a
Stock Repurchase Program, to be reaffirmed annually, pursuant to which the
Company may repurchase shares of the Company's common stock for the primary
purpose of providing liquidity to its shareholders. Pursuant to stock repurchase
authorizations and limitations, the Company purchased 176,099 shares during 1999
and 24,241 shares during 1998 with an aggregate purchase price of $968,545 and
$133,376, respectively.
- --------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE AND DIRECTOR BENEFIT PLANS
Employees' Savings Plus and Profit Sharing Plan
The Company has established an associate tax deferred savings plan under Section
401(k) of the Internal Revenue Code of 1986. All associates who are scheduled to
work 1,000 hours or more are eligible to participate upon completion of one year
of employment.
The Company's annual contribution to the plan was $67,519 in 1999 and $113,099
in 1998, determined as follows:
o One percent of each participant's compensation.
o A matching contribution equivalent to 100% of the first 5% of each
associate's compensation contributed to the plan.
o A discretionary contribution, subject to approval by the Board of
Directors, limited to an amount not to exceed the maximum amount
deductible for income tax purposes.
Directors' Deferred Compensation Plan
The Company has established a Directors Deferred Compensation Plan in accordance
with the laws of the State of North Carolina. Each Director may elect to defer
receipt for services rendered to the Company as a Director during the term of
his or her service by entering into a written deferred compensation election.
The balance in deferred directors compensation was $121,826 and $128,730 at
December 31, 1999 and 1998, respectively.
26
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - EMPLOYEE AND DIRECTOR BENEFIT PLANS (CONTINUED)
Employee Stock Ownership Plan
The Company established an Employee Stock Ownership Plan ("ESOP") to benefit all
qualified employees. The ESOP purchased 224,726 dividend adjusted shares of
common stock in 1999 with proceeds received from a loan of $1,200,000 from the
Company. The loan is to be repaid over eighteen years with interest at 8%. The
loan may be prepaid without penalty. The unallocated shares of stock held by the
ESOP are pledged as collateral for the loan. The ESOP is funded by contributions
made by the Company and its subsidiaries in amounts sufficient to retire the
debt. At December 31, 1999, the outstanding balance of the loan is $1,167,954
and is presented as a reduction of stockholders' equity.
Shares released as the debt is repaid and earnings from the common stock held by
the ESOP are allocated among active participants on the basis of compensation in
the year of allocation. Benefits vest 100% as they are allocated to
participants. Dividends on unallocated shares may be used by the ESOP to repay
the loan to the Company and are not reported as dividends in the financial
statements. Dividends on allocated or committed to be allocated shares are
credited to the accounts of the participants and reported as dividends in the
financial statements.
Expense of $32,041 during the year ended December 31, 1999 has been incurred in
connection with the ESOP. At December 31, 1999, 12,485 shares held by the ESOP
have been released or committed to be released to the plan's participants for
purposes of computing earnings per share. The fair value of the unallocated
shares amounted to approximately $1.2 million at December 31, 1999.
- --------------------------------------------------------------------------------
NOTE 15 - ACQUISITION SUBSEQUENT TO YEAR-END
Acquisition of Anson Bank & Trust Co.
In 1999 the Company announced the signing of an agreement to acquire Anson
BanCorp, Inc. and its wholly-owned subsidiary, Anson Savings Bank. Anson Savings
Bank is a state chartered savings bank that operates a full service banking
location in Wadesboro, North Carolina. The acquisition closed on January 19,
2000, with the acquisition cost of approximately $10.3 million paid principally
in cash. This business combination is being accounted for using the purchase
method.
At the date of closing, Anson Bancorp, Inc. had total consolidated assets of
approximately $24.0 million and customer deposits of approximately $14.5
million. The savings bank retained its North Carolina savings bank charter and
became a wholly-owned subsidiary of Uwharrie Capital Corp as Anson Bank & Trust
Co.
The Company has recorded intangible assets of approximately $1,150,000 as a
result of this acquisition.
- --------------------------------------------------------------------------------
27
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - NEW ACCOUNTING STANDARDS
Accounting Standards Issued but Not Yet Adopted
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that the Company recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. The Company will adopt SFAS No. 133 on
January 1, 2001, as required. Given that the Company has no investments in
derivative instruments, management of the Company believes that adoption of SFAS
No. 133 will not have a material impact on the Company's balance sheet or the
related statements of income and changes in shareholders' equity.
- --------------------------------------------------------------------------------
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISK
The following table reflects a comparison of carrying amounts and the estimated
fair value of the financial instruments as of December 31.
<TABLE>
<CAPTION>
1999 1998
---------------------- ------------------------
Carrying Estimated Carrying Estimated
(In thousands) Amount Fair Value Amount Fair Value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks, interest-bearing deposits $ 7,700 $ 7,700 $ 6,800 $ 6,800
with banks, and federal funds sold
Securities available for sale 35,727 35,727 24,075 24,075
Variable rate loans 69,129 69,129 60,505 60,508
Other loans 70,966 70,186 71,796 72,447
---------- ------------ ----------- -------------
Total loans 140,095 139,315 132,301 132,955
---------- ------------ ----------- -------------
Accrued interest receivable 1,104 1,104 941 941
---------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES
Deposits
Non-interest bearing $ 17,062 $ 17,062 $ 16,136 $ 16,136
Variable rate, payable on demand 66,443 66,443 62,783 62,783
Fixed-rate time certificates of deposit 51,317 51,241 60,327 60,433
---------- ------------ ----------- -------------
Total deposits 134,822 134,746 139,246 139,352
---------- ------------ ----------- -------------
Short-term borrowing 21,739 21,739 4,795 4,795
Long-term debt 18,251 18,293 6,825 6,772
Accrued interest payable 220 220 189 189
---------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISK
(CONTINUED)
At December 31, 1999, the Bank had outstanding standby letters of credit and
commitments to extend credit. These off-balance sheet financial instruments are
generally exercisable at the market rate prevailing at the date the underlying
transaction will be completed, and, therefore, they were deemed to have no
current fair market value. See Note 10.
It should be noted that the estimated fair values disclosed in this table do not
represent market values of all assets and liabilities of the Company and should
not be interpreted to represent the underlying value of the Company.
Interest Rate Risk
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are more likely to prepay in a falling rate
environment and less likely to prepay in a rising rate environment. Conversely,
depositors who are receiving fixed rates are more likely to withdraw funds
before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities and attempts to minimize interest rate risk by adjusting terms of
new loans and deposits and by investing in securities with terms that mitigate
the Company's overall interest rate risk.
- --------------------------------------------------------------------------------
29
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
In Thousands Except Per Share And Shares Outstanding Information
- -----------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest Income $ 13,027 $ 11,898 $ 11,019 $ 10,040 $ 8,913
Interest Expense 5,672 5,192 4,879 4,511 4,051
------------- -------------- -------------- ------------ -----------
Net Interest Income 7,355 6,706 6,140 5,529 4,862
Provision for Loan Losses 210 119 183 137 77
Noninterest Income 1,428 1,519 1,491 1,361 1,183
Noninterest Expense 6,900 6,214 5,722 5,277 4,988
Income taxes 521 587 540 451 199
------------- -------------- -------------- ------------ -----------
Net Income $ 1,152 $ 1,305 $ 1,186 $ 1,025 $ 781
============= ============== ============== ========================
Per Common Share
Net Income - Basic (1) $ .22 $ .28 $ .25 $ .22 $ .16
Net Income - Diluted (1) .22 .27 .25 .22 .16
Cash dividends N/A N/A N/A .10 .09
Book Value (1) 3.08 3.04 2.65 2.39 2.30
Weighted Average Shares
Outstanding:
Basic (1) 5,259,677 4,738,477 4,697,321 4,722,569 4,757,628
Diluted (1) 5,353,366 4,859,187 4,803,718 4,722,569 4,757,628
- ----------------------------------------------------------------------------------------------------------
Selected year-end balances
Assets $ 192,717 $ 167,386 $ 145,704 $ 133,876 $ 120,839
Loans 140,095 132,301 113,985 100,852 90,948
Securities 35,727 24,075 23,847 25,220 23,114
Deposits 134,823 139,246 116,905 104,599 95,794
Borrowed funds 39,990 11,620 15,584 17,421 13,275
Shareholders' equity 17,061 15,698 12,534 11,303 10,913
Selected average balances
Assets $ 172,811 $ 153,006 $ 140,508 $ 128,193 $ 113,535
Loans 134,044 117,442 107,696 97,201 82,630
Securities 28,720 26,322 25,577 23,594 23,916
Deposits 135,579 126,493 111,593 101,638 95,794
Borrowed funds 19,501 13,016 16,482 14,893 11,891
Shareholders' equity 16,632 13,497 11,818 11,123 10,445
</TABLE>
(1) Net income per share, book value per share, weighted average shares
outstanding and shares outstanding at year-end for 1995 through 1999 have
been adjusted to reflect a 3% stock dividend issued in 1999, a 100% stock
dividend issued in 1998, a 5% stock dividend issued in 1997 and 3% stock
dividends issued in 1996 and 1995.
30
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
OPERATING RESULTS AND THE COMPANY'S FINANCIAL CONDITION ARE PRESENTED IN THE
FOLLOWING NARRATIVE AND FINANCIAL TABLES. THE COMMENTS ARE INTENDED TO
SUPPLEMENT AND SHOULD BE REVIEWED IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED FOOTNOTES APPEARING ON PAGES 6 - 29. REFERENCES TO
CHANGES IN ASSETS AND LIABILITIES REPRESENT END OF PERIOD BALANCES UNLESS
OTHERWISE NOTED.
THIS ANNUAL REPORT TO SHAREHOLDERS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
CONSISTING OF ESTIMATES WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND OTHER BUSINESS OF UWHARRIE CAPITAL CORP THAT ARE SUBJECT TO
VARIOUS FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
ESTIMATES. FACTORS, WHICH COULD INFLUENCE THE ESTIMATES, INCLUDE CHANGES IN
NATIONAL, REGIONAL AND LOCAL MARKET CONDITIONS, LEGISLATIVE AND REGULATORY
CONDITIONS, AND THE INTEREST RATE ENVIRONMENT.
EARNINGS OVERVIEW
Uwharrie Capital Corp (the "Company") produced consolidated income before income
taxes and securities losses of $2.2 million in the twelve months ended December
31, 1999, compared to $1.9 million in 1998, an increase of 15.9%. The Bank
implemented a tax savings transaction in December 1999 that resulted in realized
losses from sales of investment securities of $531 thousand. The transaction
reduced the Company's net income by $325 thousand but resulted in tax savings of
approximately $206 thousand. The proceeds from the sale of taxable securities
were reinvested in non-taxable municipal securities, which will result in
increased interest income in year 2000 and beyond.
Net income, after recognition of the bond loss transaction and applicable taxes,
was $1,152,384 for the year ended December 31, 1999, reflecting a decrease of
$153,077 compared to net income of $1,305,461 in 1998.
The Company experienced outstanding asset growth of $25.3 million during 1999,
an increase of 15.1%. This growth produced an increase in net interest income of
$649 thousand when comparing the two periods, an increase of 9.7%. Loans
increased by $7.8 million or 5.9% and produced $1.0 million in additional
earnings compared to the prior year. Investment securities increased by $11.7
million or 48.4% as a result of securitization of loans generated by the Bank.
Asset growth was funded primarily by an increase in shot-term and long-term
borrowed funds.
Income from service charges, other service fees and commissions increased from
$1.5 million to $1.8 million when comparing the two periods, an increase of $383
thousand or 26.2%. Noninterest expenses increased by $686 thousand or 11.0%.
Net income for the years ended 1999 and 1998 and certain key financial
performance ratios are reflected below:
1999 1998
-------------------------------------- --------------- ---------------
Net Income $1,152,384 $1,305,461
Return on average assets .67% .85%
Return on average equity 6.93% 9.67%
Average equity to average assets 9.62% 8.82%
-------------------------------------- --------------- ---------------
Uwharrie Capital Corp has managed to achieve good performance while developing
its strategy to remain a strong, viable independent financial institution. As
early as 1993, the Company began a program to develop and expand its technology
capabilities, which remains a focus today. This development has provided the
capacity to grow the organization, develop new products and leverage the high
cost of delivering competitive services. Management believes this strategy will
enable the Company to remain competitive with larger institutions and allow its
service area to enjoy the benefits of a local financial institution and the
strength its capital investment provides to the community.
31
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NET INTEREST INCOME
The Company's major source of revenue is net interest income, which is the
excess of interest income earned on loans and securities over interest expense
paid on deposits and borrowings. Net interest income, as reflected on the
consolidated income statement, increased by $649 thousand or 9.7% for the year
ended December 31, 1999, compared to the prior year. This improvement was
produced by an increase in interest income generated by growth in the loan and
investment portfolios. Yields on loans during 1999 were 8.32% compared to 8.64%
in 1998; however, cost of funds also decreased during this period. Net interest
margin expressed as a percentage of earnings assets decreased slightly from
4.71% to 4.61%, which is currently typical in the financial services industry.
Taxable securities produced income of $1.5 million and reflected a yield of
6.51%, during the twelve months of 1999 compared to $1.3 million with a yield of
6.27%, during the same period of 1998. This improvement is due primarily to the
securitization of $18 million of the Company's loans which were subsequently
held in its investment portfolio.
Non-taxable securities produced revenue of $327 thousand and reflected a yield
of 8.98% on a tax equivalent basis during the twelve-month period compared to
$325 thousand with a tax equivalent yield of 8.95% in 1998. Interest income from
non-taxable securities is expected to be higher in 2000 due to sale of taxable
securities and reinvestment in higher tax effected yielding non-taxable
securities in December 1999.
Interest expense on deposits increased by $145 thousand or 3.2% due to higher
average balances during 1999 compared to 1998. The weighted average rate paid on
interest-bearing deposits was 4.10% in 1999 compared to 4.20% in 1998.
Because of 15% asset growth in 1999 and a decrease in deposits, dependence on
other funding has increased. Accordingly, interest expense on borrowed funds
increased by $335 thousand or 47.5%. Average short-term borrowed funds increased
by $2.8 million and reflected an average cost of 4.6% in 1999 and 1998. Average
long-term debt increased by $3.7 million and reflected a cost of 6.0% in 1999
compared to 6.3% in the previous twelve months.
The Company's net interest margin, the difference between the tax-equivalent
yield on earning assets and the rate paid on funds to support those assets, was
relatively stable during 1999 and 1998, reflecting margins of 4.61% and 4.71%,
respectively. The primary factor in current change in margin is the increased
dependence on borrowed funds, which are generally higher in cost than deposits.
A stable margin reflects the Company's ability to manage the mix and pricing of
its interest-bearing assets and liabilities to minimize the effect of interest
rate changes on its balance sheet and the resulting net interest income. There
were no wide swings in interest rates during 1999 or 1998 and rate changes in
these periods did not significantly impact the margin. The Company is pleased
with this performance considering the competitive nature of the financial
services industry.
Financial Table 1 on Page 37 presents a detailed analysis of the components of
the Company's net interest income. This exhibit discloses the dollar change in
average assets and liabilities along with the associated changes in yields and
interest income and expense.
32
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS
The Company's loan demand remained strong in 1999, primarily in mortgage and
commercial loans. Gross outstanding loans at December 31, 1999 totaled $140.1
million, $7.8 million greater than at December 31, 1998, representing an
increase of 5.9%.
Investment securities, net of unrealized losses, totaled $35.7 million at
December 31, 1999 compared to $24.1 million at this period end in 1998, an
increase of $11.7 million or 48.4%.
During 1999, customer deposits decreased by $4.4 million, reflecting a current
industry trend of flat to declining deposit growth as investors move deposit
dollars into other financial markets. Other funding sources utilized during 1999
included securities sold under repurchase agreements, Master Notes, federal
funds purchased and advances from Federal Home Loan Bank. At December 31, 1999,
these other funding sources totaled $40.0 million compared to $11.6 million at
the end of the prior year.
At year-end 1999, the Company's balance sheet reflected approximately $3 million
in additional cash on hand relative to anticipated cash needs for Y2K. Other
assets at December 31, 1999 included $2.5 million in net proceeds receivable
from the sale and purchase of securities with trade dates in December and
settlements in January 2000.
NONPERFORMING ASSETS
Nonperforming assets, composed of nonaccrual loans and foreclosed real estate,
remain at a level below the peer group averages, reflective of the Company's
ongoing commitment to maintaining asset quality. Nonaccrual loans at December
31, 1999 were $317 thousand and represented .23% of outstanding loans compared
with $68 thousand reflecting a ratio of .05% at December 31, 1998. Foreclosed
real estate totaled $114 thousand at year-end 1999 and $85 thousand at year-end
1998.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company uses a rating method to determine an adequate level of provision for
loan losses, which additionally provides early detection of problem loans. This
identification process begins with management's assessment of credit reviews,
payment histories of borrowers, loan-to-value ratio, and identified weakness in
the credit. The loans are graded and management establishes a standard
percentage to reserve for each rating. Included in the calculation are loans
previously identified by examiners as loss, doubtful or substandard.
The transactions in the allowance for loan losses are summarized in the Note 4
to the consolidated financial statements. The ratio of net charge-offs to
average loans outstanding is currently an excellent ratio compared to bank
peers, .28% in 1999 and .06% in 1998. Loan loss provision expense during 1999
was $210 thousand compared to $119 thousand for 1998. The increase in the amount
needed to fund the reserve in 1999, compared to 1998, can be attributed to a
increase in the amount of net charge-offs, mix of the loan portfolio, loan
performance, and management assessment of risk in the portfolio.
33
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NONINTEREST INCOME
The Company generates most of its revenue from net interest income; however,
noninterest income is an important revenue stream and is receiving growing focus
in the financial industry. Total noninterest income, exclusive of securities
gains (losses), increased by $430 thousand in the twelve months ended December
31, 1999 compared to 1998, an increase of 28.1%.
The principal component of noninterest income, service charges on deposit
accounts, amounted to $1,060 thousand in 1999 compared to $952 thousand in 1998,
which represents an increase of $108 thousand or 11.3%. The ratio of service
charge income from the banking subsidiary to average assets of .61% for 1999 and
.62% for 1998 is favorable compared to other banks of similar size. Another
factor with significant influence to this category is the Bank's brokerage and
insurance subsidiaries, which contributed commission and fee income of $467
thousand in 1999 and $286 thousand in 1998.
NONINTEREST EXPENSE
For the twelve months ended December 31, 1999 compared to the same period of
1998, noninterest expenses totaled $6.9 million and $6.2 million, respectively,
an increase of $686 thousand or 11.0%.
Personnel costs continue to be the largest component of noninterest expense,
increasing by $418 thousand or 12.4%, due to merit salary increases, additional
staff and associated benefits cost. Salaries and incentives totaled $3.1 million
in 1999 compared to $2.8 million in the prior year. Employee benefits and other
personnel costs were up by $69 thousand.
Occupancy expense increased by $6 thousand or 2.2% in 1999 compared to 1998, due
primarily to renovations and repairs in some offices. Data processing costs
increased slightly, reflecting expenses of $476 thousand and $467 thousand in
the two periods, respectively. Equipment expense includes the cost of
depreciation and maintenance associated with furniture, network computers, PC
workstations, other banking equipment and the amortization of technology related
and other software. These expenses, which totaled $659 thousand in 1999 and $473
thousand in 1998, reflect an increase of $186 thousand or 39.3%, due primarily
to software development to support new products.
Remaining combined categories of noninterest expense, including professional
fees, marketing, electronic banking delivery, director fees, insurance,
supplies, postage, telephone and other expenses remained relatively stable when
comparing the two periods. The most significant of these expenses are
professional fees and marketing. Expenses for professional fees, which include
accounting, outside services, consulting and legal expenses, decreased by $27.1
thousand compared to the prior year. Marketing, including the cost of
advertising, sales promotion, public relations, donations and business
development, totaled $262.9 thousand in 1999 compared to $217 thousand in 1998.
CAPITAL RESOURCES
The Company continues to maintain strong capital ratios that support its asset
growth. As of December 31, 1999, capital as a percentage of total assets
reflected a ratio of 8.85%, which exceeds the Company's strategic goal to
leverage capital while maintaining a strong capital position. This compares to
9.38% at the end of 1998. The capital position is maintained through the
retention of earnings and controlled growth. Enhancing the capital position in
1999 was completion of the sale of common shares through a Subscription Offer,
which provided additional capital of $1.5 million.
34
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Regulatory agencies divide capital into Tier I (consisting of shareholders'
equity less ineligible intangible assets) and Tier II (consisting of the
allowable portion of the reserve for loan losses and certain long-term debt) and
measure capital adequacy by applying both capital levels to a banking company's
risk-adjusted assets and off-balance sheet items. Regulatory requirements
presently specify that Tier I capital should exclude the market appreciation of
securities available-for-sale arising from valuation adjustments under FASB 115.
In addition to these capital ratios, regulatory agencies have established a Tier
I leverage ratio which measures Tier I capital to average assets less ineligible
intangible assets.
Regulatory guidelines require a minimum of total capital to risk-adjusted assets
ratio of 8 percent with one-half consisting of tangible common shareholders'
equity and a minimum Tier I leverage ratio of 3 percent. Banks which meet or
exceed a Tier I ratio of 6 percent, a total capital ratio of 10 percent and a
Tier I leverage ratio of 5 percent are considered well capitalized by regulatory
standards.
At December 31, 1999, the Company's Tier I to risk-adjusted assets ratio was
13.4% with total capital at 14.1% of risk-adjusted assets and Tier I leverage
ratio at 9.4%. The Company expects to continue to exceed these minimums without
altering current operations or strategy.
DIVIDENDS
During 1999 the Board of Directors of Uwharrie Capital Corp declared a 3% stock
dividend. In 1998 a two-for-one stock split in the form of a 100% stock dividend
was issued, increasing each shareholder's investment in the Company.
INCOME TAX EXPENSE
Income taxes computed at the statutory rate are reduced primarily by the
eligible amount of interest earned on state and municipal securities. Income tax
expense calculated for 1999 totaled $521 thousand, an effective tax rate of
31.1%. During 1998 the effective tax rate was 31.0%.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and accompanying footnotes have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollars without consideration for changes in the relative
purchasing power of money over time due to inflation. The assets and liabilities
of the Company are primarily monetary in nature and changes in interest rates
have a greater impact on the Company's performance than do the effects of
inflation.
LIQUIDITY
Liquidity, the ability to raise cash when needed without adversely impacting
profits, is managed primarily by the selection of asset mix and the maturity mix
of liabilities. Maturities and the marketability of securities and other funding
sources provide a source of liquidity to meet deposit fluctuations. Maturities
in the securities portfolio, presented in Note 2, are supported by cash flows
from mortgage-backed securities that have longer-term contractual maturities.
Other funding sources at year-end included $15.5 million in federal funds lines
of credit from correspondent banks and approximately $38.9 million available
line of credit from the Federal Home Loan Bank. The Company can also borrow from
the Federal Reserve Bank discount window. Growth in deposits is typically the
primary source of funding for loans, supported by long-term credit available
from the Federal Home Loan Bank.
At December 31, 1999, the Company had an additional $3 million in cash on hand
relative to anticipated cash needs for Y2K. Borrowings from federal funds lines
amounted to $2.7 million and advances from the Federal Home Loan Bank at that
date consisted of $13.2 million in short-term debt and $18.3 million in
long-term debt.
35
<PAGE>
UWHARRIE CAPITAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
The major component of income for Uwharrie Capital Corp is net interest income,
the difference between yield earned on assets and interest paid on liabilities.
This differential or margin can vary over time as changes in interest rates
occur. The volatility of changes in this differential can be measured by the
timing (or repricing) difference between maturing assets and liabilities.
To identify interest rate sensitivity, a common measure is a gap analysis which
reflects the difference or gap between rate sensitive assets and liabilities
over various time periods. Gap analysis at December 31, 1999 is reflected in
Financial Table 3 at page 39. While management reviews this information, it has
implemented the use of a simulation model which calculates expected net interest
income based on projected interest-earning assets, interest-bearing liabilities
and interest rates and provides a more relevant view of interest rate risk than
traditional gap tables. The simulation allows comparison of flat, rising and
falling rate scenarios to determine sensitivity of earnings to changes in
interest rates.
The principal goals of the Company's asset liability management are the
maintenance of adequate liquidity and the management of interest rate risk.
Interest rate risk management attempts to balance the effects of interest rate
changes on interest-sensitive assets and liabilities to protect net interest
income from wide fluctuations that could result from changes in interest rates.
The Asset Liability Management Committee monitors market changes in interest
rates and assists with pricing loans and deposit products consistent with
funding source needs and asset growth projections.
YEAR 2000
The Year 2000 issue has posed business risks to most business organizations,
including Uwharrie Capital Corp and its subsidiaries. In response, the Company
formed a Year 2000 project team, consisting of senior officers within the Bank's
operations, information systems, financial and management areas, to ensure that
the Bank attained Year 2000 compliance. All date sensitive systems were
evaluated for Year 2000 compliance, with complete upgrading and testing of
systems completed well in advance of the Year 2000 date change. The Company also
developed contingency plans for its computer processes, including the use of
alternative systems and the manual processing of certain critical operations. In
addition, extensive efforts were undertaken to ensure that significant vendor
and customer relationships are Year 2000 compliant.
The Company's management is pleased, but not surprised, that business continued
as normal without adverse impact to the Company during the critical date change.
In coming months, the Company will continue monitoring external entities to
assure that they have not experienced any Year 2000 problems that could impact
their relationship with the Company.
The Company estimates that its total Year 2000 compliance costs aggregated
approximately $35,000 in 1999 and $10,000 in 1998, all of which was charged to
operations. However, this does not include personnel costs associated with the
Year 2000 project estimated to be equivalent to the cost of a full-time
associate in 1999 and 1998. In addition to the costs of its Year 2000
compliance, the Company routinely makes annual investments in technology in its
efforts to improve customer service and to efficiently manage its product and
service delivery systems.
36
<PAGE>
FINANCIAL TABLE 1
AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- ---------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (1) Balance Expense Rate (1)
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Taxable securities $ 23,117 $ 1,505 6.51% $ 20,733 $ 1,299 6.27%
Non-taxable securities 5,603 327 8.98 5,589 325 8.95
Short-term investments 725 38 5.25 2,216 128 5.80
Loans, gross (2) 134,044 11,157 8.32 117,442 10,146 8.64
---------------------------------------- ----------------------------------------
Total interest-earning assets 163,489 13,027 8.08 145,980 11,898 8.27
---------------------------------------- ----------------------------------------
NON-EARNING ASSETS
Cash and due from banks 4,202 3,827
Premises and equipment, net 3,277 2,537
Interest receivable and other 1,843 662
------------ -----------
Total non-earning assets 9,322 7,026
------------ -----------
Total assets $ 172,811 $ 153,006
============ ===========
INTEREST-BEARING LIABILITIES
Savings deposits $ 36,507 1,355 3.71 $ 34,025 1,335 3.92
Transaction and MMDA deposits 28,929 622 2.15 28,164 624 2.21
Other time deposits 53,566 2,655 4.96 48,474 2,528 5.21
---------------------------------------- ----------------------------------------
Total deposits 119,002 4,632 3.89 110,663 4,487 4.05
Short-term borrowed funds 9,538 439 4.60 6,718 307 4.57
Long-term debt 9,963 601 6.03 6,298 398 6.32
---------------------------------------- ----------------------------------------
Total interest-bearing liabilities 138,503 5,672 4.10 123,679 5,192 4.20
---------------------------------------- ----------------------------------------
NONINTEREST LIABILITIES
Transaction deposits, interest
payable and other 17,676 15,830
------------ -----------
Total liabilities 156,179 139,509
------------ -----------
SHAREHOLDERS' EQUITY 16,632 13,497
------------ -----------
Total liabilities and
shareholders' equity $ 172,811 $ 153,006
============ ===========
INTEREST RATE SPREAD 3.98% 4.07%
========== ==========
NET INTEREST INCOME AND NET
INTEREST MARGIN $7,355 4.61% $6,706 4.71%
========== ========== ========== ==========
</TABLE>
(1) Yields related to securities and loans exempt from federal and/or state
income taxes are stated on a fully tax- equivalent basis, assuming a 35%
tax rate.
(2) Nonaccrual loans are included in loans, net of unearned income.
37
<PAGE>
FINANCIAL TABLE 2
VOLUME AND RATE VARIANCE ANALYSIS
(In thousands)
<TABLE>
<CAPTION>
1999 Compared to 1998
--------------------------------------
Variance
Income/ Attributable to
Expense ------------------------
Variance Volume Rate
--------- ---------- ---------
<S> <C> <C> <C>
EARNING ASSETS
Taxable securities $ 206 $ 154 $ 52
Non-taxable securities 2 1 1
Short-term investments (90) (79) (11)
Loans, gross 1,012 1,360 (348)
--------- ---------- ---------
Total earning assets 1,130 1,436 (306)
--------- ---------- ---------
INTEREST-BEARING LIABILITIES
Savings deposits 20 71 (51)
Transaction and MMDA deposits (2) 22 (24)
Other time deposits 128 238 (110)
Short-term borrowed funds 132 130 2
Long-term debt 203 220 (17)
--------- ---------- ---------
Total interest-bearing liabilities 481 681 (200)
--------- ---------- ---------
NET INTEREST INCOME $ 649 $ 755 $ (106)
========= ========== =========
</TABLE>
- --------------------------------------------------------------------------------
The above table analyzes the dollar amount of changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated pro rata to the change attributable to
volume and the change attributable to rate.
38
<PAGE>
FINANCIAL TABLE 3
INTEREST RATE GAP
(Dollars in thousands)
<TABLE>
<CAPTION>
1 - 90 3 - 6 6 - 12
Day Month Month 1 - 5 Year > 5 Year Total
Position Position Position Position Position Position
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Due from banks $ 384 $ - $ - $ - $ - $ 384
Federal funds sold - - - - - -
Investment securities 836 863 3,512 7,900 20,932 34,043
FHLB and other stock - - - - 1,684 1,684
Variable rate loans 68,652 62 195 220 - 69,129
Fixed rate loans 2,403 2,720 7,713 31,678 26,452 70,966
------------ ------------ ------------ ------------ ------------ --------------
Total interest-earning assets 72,275 3,645 11,420 39,798 49,068 176,206
------------ ------------ ------------ ------------ ------------ --------------
INTEREST-BEARING LIABILITIES
Deposits 60,692 17,880 11,694 19,910 7,584 117,760
Short-term borrowed funds 21,739 - - - - 21,739
Long-term debt 324 25 2,123 9,817 5,962 18,251
------------ ------------ ------------ ------------ ------------- -------------
Total interest-bearing
liabilities 82,755 17,905 13,817 29,727 13,546 157,750
------------ ------------ ------------ ------------ ------------- -------------
Interest sensitivity GAP per
period $(10,480) $(14,260) $ (2,397) $ 10,071 $ 35,522 $ 18,456
============ ============ ============ ============ ============= =============
Cumulative interest sensitivity
GAP $(10,480) $(24,740) $ (27,137) $ (17,066) $ 18,456 $ 18,456
============ ============ ============ ============ ============= =============
RATIOS
Cumulative gap as a percentage
of total interest-earning assets (5.95%) (14.04%) (15.40%) (9.69%) 10.47% 10.47%
Cumulative interest-earning
assets as a percentage of
interest-bearing liabilities 87.34% 75.42% 76.29% 88.17% 111.70% 111.70%
</TABLE>
- --------------------------------------------------------------------------------
39
<PAGE>
UWHARRIE CAPITAL CORP
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
CYNTHIA H. BEANE JAMES F. LINK, D.V.M. KENT E. NEWPORT
Certified Public Accountant Veterinarian and Owner President, KDC, Inc.
Cynthia H. Beane, Proprietor North Stanly Animal Clinic DBA Coy's Laundromat
JOE S. BROOKS JOYCE H. LITTLE CATHERINE A. PICKLER
Partner Co-Owner Homemaker and Community
Brothers Precision Tool Company Wiley Little Drywall, Inc. Volunteer
RONALD T. BURLESON W. CHESTER LOWDER GEORGE T. REAVES
Partner Director of Dairy and Beef Retired - Vice President Traffic and
Thurman Burleson & Sons Farm Programs and Assistant Director Transportation
of Natural Resources Collins & Aikman Corporation
N.C. Farm Bureau Federation
BILL C. BURNSIDE, D.D.S. President - Fork L. Farm, Inc.
Dentist and Owner A. JAMES RUSSELL
Bill C. Burnside, D.D.S Construction Manager
BUREN MULLINS
Retired - Vice President and J.T. Russell & Sons, Inc.
GAIL C. BURRIS General Manager
Owner and Manager Sundrop Bottling Company, Inc. B. A. SMITH, JR.
Rosebriar Restaurant Retired - Pilot and Base
Commander
JOHN P. MURRAY, M.D. United States Air Force
DAVID M. JONES, D.V.M. Retired - Physician
Director of the North Carolina Albemarle Ear, Nose and Throat DOUGLAS V. WADDELL
Zoological Park in Asheboro Retired - Automotive Dept.
Manager
KYLE H. JOSEY Sears Roebuck and Co.
Owner, Josey & Josey Accountants
</TABLE>
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
<S> <C> <C>
ROGER L. DICK RONALD B. DAVIS CHRISTY D. STONER
Chief Executive Officer, President, Uwharrie Capital Corp President / Chief Executive Officer,
Uwharrie Capital Corp President / Chief Executive Officer, The Strategic Alliance Corporation
Bank of Stanly
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1999
NAME OF SUBSIDIARY STATE OF INCORPORATION
- --------------------------------------------------------------------------------
Bank of Stanly North Carolina
Strategic Investment Advisors, Inc. North Carolina
EXHIBIT 23
<PAGE>
UWHARRIE CAPITAL CORP
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
EFFECTIVE
JANUARY 1, 1999
<PAGE>
UWHARRIE CAPITAL CORP
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
EFFECTIVE JANUARY 1, 1999
THIS AGREEMENT, hereby made and entered into this 1st day of
January, 1999 by UWHARRIE CAPITAL CORP (herein referred to as the
"Employer") and ROGER L. DICK, RONALD B. DAVIS, CHRISTY D. STONER, LORELEI V.
MISENHEIMER, JACQUELINE S. JERNIGAN, and BARBARA S. WILLIAMS (herein
collectively and individually referred to as the "Trustee").
W I T N E S S E T H:
WHEREAS, the Employer desires to establish an Employee Stock Ownership
Plan to enable its eligible employees to acquire a proprietary interest in
capital stock of the Employer, whereby contributions to the Plan will be made by
the Employer and such contributions made to the trust will be invested primarily
in the capital stock of the Employer; and
WHEREAS, the Employer desires to recognize the contribution made to its
successful operation by its employees and to reward such contribution by means
of an Employee Stock Ownership Plan for those employees who shall qualify as
Participants hereunder.
NOW, THEREFORE, effective January 1, 1999 (hereinafter called the
"Effective Date"), the Employer hereby establishes the Uwharrie Capital Corp
Employee Stock Ownership Plan and Trust (hereinafter referred to as the "Plan")
for the exclusive benefit of the Participants and their Beneficiaries, which is
intended to qualify as an "ESOP", according to the following terms:
ARTICLE I
DEFINITIONS
1.1 "ACT" means the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.2 "ADMINISTRATOR" means the person or persons designated by the
Employer pursuant to Section 2.2 to administer the Plan on behalf of the
Employer.
1.3 "AFFILIATED EMPLOYER" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1
<PAGE>
1.4 "AGGREGATE ACCOUNT" means, with respect to each Participant, the
value of all accounts maintained on behalf of a Participant, whether
attributable to employer or Employee contributions, subject to the provisions of
Section 4.7.
1.5 "ANNIVERSARY DATE" means December 31.
1.6 "BENEFICIARY" means the person to whom the share of a deceased
Participant's total Account is payable, subject to the restrictions of Sections
7.2 and 7.5.
1.7 "CODE" means the Internal Revenue Code of 1986, as amended or
replaced from time to time, and applicable regulations.
1.8 "COMPANY STOCK" means common stock issued by the Employer (or by a
corporation which is a member of the controlled group of corporations of which
the Employer is a member) which is readily tradable on an established securities
market. If there is no common stock which meets the foregoing requirements, the
term "Company Stock" means common stock issued by the Employer (or by a
corporation which is a member of the same controlled group) having a combination
of voting power and dividend rights equal to or in excess of: (A) that class of
common stock of the Employer (or of any other such corporation ) having the
greatest voting power, and (B) that class of common stock of the Employer (or of
any other such corporation) having the greatest dividend rights. Noncallable
preferred stock shall be deemed to be "Company Stock" if such stock is
convertible at any time into stock which constitutes "Company Stock" hereunder
and if such conversion is at a conversion price which (as of the date of the
acquisition by the Trust) is reasonable. For purposes of the preceding sentence,
pursuant to Regulations, preferred stock shall be treated as noncallable if
after the call there will be a reasonable opportunity for a conversion which
meets the requirements of the preceding sentence.
1.9 "COMPANY STOCK ACCOUNT" means the account of a Participant which is
credited with the shares of Company Stock purchased and paid for by the Trust
Fund or contributed to the Trust Fund.
1.10 "COMPENSATION" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer or Participating Employer (in the course of the
Employer's or Participating Employer's trade or business) for a Plan Year for
which the Employer is required to furnish the Participant a written statement
under Code Sections 6041(d), 6051(a)(3), and 6052. Compensation must be
determined without regard to any rules under Code Section 3401(a) that limit the
remuneration included in wages based on the nature or location of the employment
or the services performed (such as the exception for agricultural labor in Code
Section 3401(a)(2)).
For purposes of this Section, the determination of Compensation shall
be made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b), or
457, and Employee contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
2
<PAGE>
For a Participant's initial year of participation, Compensation shall
be recognized as of an Employee's effective date of participation pursuant to
Section 3.2.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not exceed
the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual compensation
limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the
Internal Revenue Service for increases in the cost of living in accordance with
Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period), beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period.
1.11 "CONTRACT" or "POLICY" means a life insurance policy or annuity
contract (group or individual) issued by the insurer as elected.
1.12 "CURRENT OBLIGATIONS" means Trust obligations arising from
extension of credit to the Trust and payable in cash within one (1) year from
the date an Employer contribution is due.
1.13 "DIRECTED INVESTMENT ACCOUNT" means the Account established for a
Participant who directs the Trustee as to the investment of all or a portion of
the interest in any one or more of his individual account balances as permitted
in Section 4.6.
1.14 "EARLY RETIREMENT DATE" means any date (prior to Normal Retirement
Date) coinciding with or next following the date on which a Participant or
Former Participant attains age 59-1/2.
1.15 "ELIGIBLE EMPLOYEE" means any Employee.
1.16 "EMPLOYEE" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a Plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.17 "EMPLOYER" means Uwharrie Capital Corp and any successor thereto.
In addition, where appropriate, the term Employer shall also apply to any
Participating Employer which shall
3
<PAGE>
adopt this Plan. However, for the purpose of this Plan, Uwharrie Capital Corp
shall be deemed the representative of each Employer, and any action taken by
Uwharrie Capital Corp with respect to administration of the Plan and
maintenance, amendment, and interpretation of this and other Plan Documents
shall be binding on all Employers.
1.18 "ESOP" means an employee stock ownership plan that meets the
requirements of Code Section 4975(e)(7) and Regulation 54.4975-11.
1.19 "EXEMPT LOAN" means a loan made to the Plan by a disqualified
person or a loan to the Plan which is guaranteed by a disqualified person and
which satisfies the requirements of Section 2550.408b-3 of the Department of
Labor Regulations, Section 54.4975-7(b) of the Treasury Regulations, and Section
5.5 hereof.
1.20 "FIDUCIARY" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.21 "FISCAL YEAR" means the Employer's taxable year for Federal income
tax purposes.
1.22 "FORFEITURE". Under this Plan, Participant accounts are 100%
Vested at all times. Any amounts that may otherwise be forfeited under the Plan
pursuant to Section 3.6 or 7.8 shall be used to reduce the contribution of the
Employer.
1.23 "FORMER PARTICIPANT" means a person who has been a Participant,
but who has ceased to be a Participant for any reason.
1.24 "415 COMPENSATION" with respect to any Participant means such
Participant's wages as defined in Code Section 3401(a) and all other payments of
compensation by the Employer (in the course of the Employer's trade or business)
for a Plan Year for which the Employer is required to furnish the Participant a
written statement under Code Sections 6041(d), 6051(a)(3), and 6052.
Compensation must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3), 402(h),
403(b) or 457, and Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
1.25 "414(S) COMPENSATION" with respect to any Participant means such
Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect
4
<PAGE>
to any Participant shall include "414(s) Compensation" for the entire twelve
(12) month period ending on the last day of such Plan Year, except that "414(s)
Compensation" shall only be recognized for that portion of the Plan Year during
which an Employee was a Participant in the Plan.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h), 403(b) or 457, and Employee contributions described in Code Section
414(h)(2) that are treated as Employer contributions.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not exceed
the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual compensation
limit.
The OBRA '93 annual compensation limit is $150,000, as adjusted by the
Internal Revenue Service for increases in the cost of living in accordance with
Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period), beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
Any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period.
1.26 "HIGHLY COMPENSATED EMPLOYEE" means an Employee, who
(a) at any time during the Plan Year or the preceding Plan
Year was a five-percent owner (as defined in Code Section 414(q)(2)) of
the Employer (applying the constructive ownership rules of Code Section
318 and the principles of Code Section 318 for an unincorporated
entity); or
(b) during the preceding Plan Year had compensation from the
Employer in excess of $80,000 (as adjusted by the Secretary pursuant to
Code Section 415(d), except that the base period shall be the calendar
quarter ending September 30, 1996), and
if the Employer elects, was part of the Top-Paid
Group of Employees (as defined in Code Section 414(q)(3)) for such
preceding Plan Year.
5
<PAGE>
The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of Employees in
the Top-Paid Group, will be made in accordance with Section 1.51, Code
Section 414(q) and the Regulations thereunder.
For purposes of this section, the term "compensation" means
compensation within the meaning of Code Section 415(c)(3).
1.27 "HIGHLY COMPENSATED FORMER EMPLOYEE" means a former Employee who
shall be treated as a Highly Compensated Employee if: (i) such Employee was a
Highly Compensated Employee when such Employee separated from service, or (ii)
such Employee was a Highly Compensated Employee at any time after attaining age
55.
1.28 "HIGHLY COMPENSATED PARTICIPANT" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.29 "HOUR OF SERVICE" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
or Participating Employer for the performance of duties during the applicable
computation period; (2) each hour for which an Employee is directly or
indirectly compensated or entitled to compensation by the Employer or
Participating Employer (irrespective of whether the employment relationship has
terminated) for reasons other than performance of duties (such as vacation,
holidays, sickness, jury duty, disability, lay-off, military duty, or leave of
absence) during the applicable computation period; (3) each hour for which back
pay is awarded or agreed to by the Employer or Participating Employer without
regard to mitigation of damages. These hours will be credited to the Employee
for the computation period or periods to which the award or agreement pertains
rather than the computation period in which the award, agreement or payment is
made. The same Hours of Service shall not be credited both under (1) or (2), as
the case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a Plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by
or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust fund,
or insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
6
<PAGE>
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). In addition, Hours of Service will be credited for
employment with other Affiliated Employers. Hours of Service will be credited
for any individual considered an Employee for purposes of this Plan under Code
Section 414(n) or 414(o) and the Regulations thereunder. The provisions of
Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein
by reference.
Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code Section 414(u).
1.30 "INVESTMENT MANAGER" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.31 "KEY EMPLOYEE" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten (10) Employees having annual "415
Compensation" from the Employer for a Plan Year greater than the dollar
limitation in effect under Code Section 415(c)(1)(A) for the calendar
year in which such Plan Year ends and owning (or considered as owning
within the meaning of Code Section 318) both more than one-half percent
(0.5%) interest and the largest interests in the Employer.
(c) a "five percent (5%) owner" of the Employer. "Five percent
(5%) owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than five percent (5%) of
the outstanding stock of the Employer or stock possessing more than
five percent (5%) of the total combined voting power of all stock of
the Employer or, in the case of an unincorporated business, any person
who owns more than five percent (5%) of the capital or profits interest
in the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections
414(b), (c), (m), and (o) shall be treated as separate employers.
(d) a "one percent (1%) owner" of the Employer having an
annual "415 Compensation" from the Employer of more than $150,000. "One
percent (1%) owner" means any person who owns (or is considered as
owning within the meaning of Code Section 318) more than one percent
(1%) of the outstanding stock of the Employer or stock
7
<PAGE>
possessing more than one percent (1%) of the total combined voting
power of all stock of the Employer or, in the case of an unincorporated
business, any person who owns more than one percent (1%) of the capital
or profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated under
Code Sections 414(b), (c), (m), and (o) shall be treated as separate
employers. However, in determining whether an individual has "415
Compensation" of more than $150,000, "415 Compensation" from each
employer required to be aggregated under Code Sections 414(b), (c),
(m), and (o) shall be taken into account.
For purposes of this Section, the term "415 Compensation" means
compensation within the meaning of Code Section 415(c)(3).
1.32 "LATE RETIREMENT DATE" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.33 "LEASED EMPLOYEE" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full-time basis for a period of at least one (1)
year, and such services are performed under primary direction or control by the
recipient. Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the recipient
employer shall be treated as provided by the recipient employer. A Leased
Employee shall not be considered an Employee of the recipient if:
(a) such employee is covered by a money purchase pension Plan
providing:
(1) a non-integrated employer contribution rate of at
least ten percent (10%) of compensation, as defined in Code
Section 415(c)(3), but including amounts contributed pursuant
to a salary reduction agreement which are excludable from the
employee's gross income under Code Sections 125, 402(a)(8),
402(h), or 403(b);
(2) immediate participation; and
(3) full and immediate vesting.
(b) Leased Employees do not constitute more than 20% of the
recipient's non-highly compensated work force.
1.34 "NON-HIGHLY COMPENSATED PARTICIPANT" means any Participant who is
not a Highly Compensated Employee.
1.35 "NON-KEY EMPLOYEE" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
8
<PAGE>
1.36 "NORMAL RETIREMENT AGE" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.37 "NORMAL RETIREMENT DATE" means the Valuation Date coinciding with
or next following the Participant's Normal Retirement Age.
1.38 "1-YEAR BREAK IN SERVICE" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation from
active employment with the Employer pursuant to an established nondiscriminatory
policy, whether occasioned by illness, military service, or any other reason.
A "maternity or paternity leave of absence" means an absence from work
for any period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of a child with the Employee in connection with the adoption of
such child, or any absence for the purpose of caring for such child for a period
immediately following such birth or placement. For this purpose, Hours of
Service shall be credited for the computation period in which the absence from
work begins, only if credit therefore is necessary to prevent the Employee from
incurring a 1-Year Break in Service, or, in any other case, in the immediately
following computation period. The Hours of Service credited for a "maternity or
paternity leave of absence" shall be those which would normally have been
credited but for such absence, or, in any case in which the Administrator is
unable to determine such hours normally credited, eight (8) Hours of Service per
day. The total Hours of Service required to be credited for a "maternity or
paternity leave of absence" shall not exceed 501.
1.39 "OTHER INVESTMENTS ACCOUNT" means the account of a Participant
which is credited with his share of the net gain (or loss) of the Plan and
Employer contributions in other than Company Stock and which is debited with
payments made to pay for Company Stock.
1.40 "PARTICIPANT" means any Eligible Employee who participates in the
Plan as provided in Section 3.2, and has not for any reason become ineligible to
participate further in the Plan.
1.41 "PARTICIPANT'S ACCOUNT" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's contributions to
the Plan.
1.42 "PLAN" means this instrument, including all amendments thereto.
1.43 "PLAN YEAR" means the Plan's accounting year of twelve (12) months
commencing on January 1 of each year and ending the following December 31.
9
<PAGE>
1.44 "REGULATION" means the Income Tax Regulations as promulgated by
the Secretary of the Treasury or his delegate, and as amended from time to time.
1.45 "RETIRED PARTICIPANT" means a person who has been a Participant,
but who has become entitled to retirement benefits under the Plan.
1.46 "RETIREMENT DATE" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Early Retirement Date, Normal Retirement Date or Late
Retirement Date (see Section 7.1).
1.47 "SUPER TOP HEAVY PLAN" means a Plan described in Section 4.7.
1.48 "TERMINATED PARTICIPANT" means a person who has been a
Participant, but whose employment has been terminated other than by death, Total
and Permanent Disability, or retirement.
1.49 "TOP HEAVY PLAN" means a Plan described in Section 4.7.
1.50 "TOP HEAVY PLAN YEAR" means a Plan Year during which the Plan is a
Top Heavy Plan.
1.51 "TOP PAID GROUP" means the top 20 percent of Employees who
performed services for the Employer during the applicable year, ranked according
to the amount of "415 Compensation" (determined for this purpose in accordance
with Section 1.24) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a Plan described in Code
Section 414(n)(5) and are not covered in any qualified Plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following Employees
shall be excluded (however, such Employees shall still be considered for the
purpose of identifying the particular Employees in the Top Paid Group):
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17-1/2 hours
per week;
(c) Employees who normally work less than six (6) months
during a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer or
any Participating Employer are covered under agreements the Secretary of Labor
finds to be collective bargaining agreements between Employee representatives
and the Employer or the Participating Employer, and the Plan covers only
Employees who are not covered under such agreements, then Employees
10
<PAGE>
covered by such agreements shall be excluded from both the total number of
active Employees as well as from the identification of particular Employees in
the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on
a uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.
1.52 "TOTAL AND PERMANENT DISABILITY." A Participant shall be
considered to have Total and Permanent Disability when the Administrator
determines the Participant is not able to engage in any gainful activity by
reason of any medically determinable physical or mental impairment, which the
Administrator expects to result in death or which the Administrator expects to
last for a continuous period of not less than twelve (12) months. Furthermore,
the disabling condition must exist for a period of at least six (6) months
before the Administrator makes a determination of disability, and the
Participant must be eligible for and must actually receive disability benefits
under the Social Security Act. The Administrator shall apply the provisions of
this section in a non-discriminatory, consistent and uniform manner.
1.53 "TRUSTEE" means the person or entity named as trustee in the
separate trust agreement forming a part of this Plan, and any successors.
1.54 "TRUST FUND" means the assets of the Plan held by the Trustee as
the same shall exist from time to time.
1.55 "UNALLOCATED COMPANY STOCK SUSPENSE ACCOUNT" means an account
containing Company Stock acquired with the proceeds of an Exempt Loan and which
has not been released from such account, and allocated to the Participants'
Company Stock Accounts.
1.56 "VALUATION DATE" means each June 30 and December 31, or other date
or dates deemed necessary by the Administrator to determine the net worth of the
assets comprising the Trust Fund pursuant to Section 6.1.
1.57 "VESTED" means the nonforfeitable portion of any account
maintained on behalf of a Participant.
1.58 "YEAR OF SERVICE" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service. The participation computation period beginning after a 1-Year Break in
Service shall be measured from the date on which an Employee again performs an
Hour of Service. The participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service.
For vesting and all other purposes, the computation period shall be the
Plan Year, including periods prior to the Effective Date of the Plan. Years of
Service with any Affiliated Employer shall be recognized.
11
<PAGE>
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for purposes
of sharing in Employer contributions, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
ARTICLE II
ADMINISTRATION
2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) Appointment and Removal of Trustee and Administrator. The
Employer shall be empowered to appoint and remove the Trustee and the
Administrator from time to time as it deems necessary for the proper
administration of the Plan to assure that the Plan is being operated
for the exclusive benefit of the Participants and their Beneficiaries
in accordance with the terms of the Plan, the Code, and the Act.
(b) Funding Policy and Method. The Employer shall establish a
"funding policy and method," i.e., it shall determine whether the Plan
has a short run need for liquidity (e.g., to pay benefits) or whether
liquidity is a long run goal and investment growth (and stability of
same) is a more current need, or shall appoint a qualified person to do
so. The Employer or its delegate shall communicate such needs and goals
to the Trustee, who shall coordinate such Plan needs with its
investment policy. The communication of such a "funding policy and
method" shall not, however, constitute a directive to the Trustee as to
investment of the Trust Funds. Such "funding policy and method" shall
be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(c) Review of Performance of Fiduciaries. The Employer shall
periodically review the performance of any Fiduciary or other person to
whom duties have been delegated or allocated by it under the provisions
of this Plan or pursuant to procedures established hereunder. This
requirement may be satisfied by formal periodic review by the Employer
or by a qualified person specifically designated by the Employer,
through day-to-day conduct and evaluation, or through other appropriate
ways.
2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more persons to serve on a Plan
administration committee which committee shall be referred to herein as the
Administrator. Any person, including, but not limited to, the Employees of the
Employer, shall be eligible to serve as an Administrator. Any person so
appointed shall signify his acceptance by filing written acceptance with the
Employer. A committee member may resign by delivering his written resignation to
the Employer or be removed by the Employer by delivery of written notice of
removal, to take effect at a date specified therein, or upon delivery to the
Administrator if no date is specified. The Employer, upon the resignation or
removal of a committee member, shall promptly designate in writing a
12
<PAGE>
successor to this position. If the Employer does not appoint an Administrator,
the Employer will function as the Administrator.
2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
2.4 POWERS AND RESPONSIBILITIES OF THE ADMINISTRATOR
(a) Primary Responsibility of Administrator. The primary
responsibility of the Administrator is to administer the Plan for the
exclusive benefit of the Participants and their Beneficiaries, subject
to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power, in its
sole and absolute discretion, to construe the terms of the Plan and to
determine all questions arising in connection with the administration,
interpretation, and application of the Plan. Any such determination by
the Administrator shall be conclusive and binding upon all persons. The
Administrator may establish procedures, correct any defect, supply any
information, or reconcile any inconsistency in such manner and to such
extent as shall be deemed necessary or advisable to carry out the
purpose of this Agreement; provided, however, that any procedure,
discretionary act, interpretation or construction shall be done in a
nondiscriminatory manner based upon uniform principles consistently
applied and shall be consistent with the intent that the Plan shall
continue to be deemed a qualified Plan under the terms of Code Section
401(a), and shall comply with the terms of the Act and all regulations
issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
(b) Powers and Duties of Administrator. The Administrator
shall be charged with the powers and duties of the general
administration of the Plan, including, but not limited to, the
following:
(1) to determine, in its sole and absolute
discretion, all questions relating to the eligibility of
Employees to participate or remain a Participant hereunder and
to receive benefits under the Plan;
(2) to compute, certify, and direct the Trustee with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(3) to authorize and direct the Trustee with respect
to all nondiscretionary or otherwise directed disbursements
from the Trust;
13
<PAGE>
(4) to maintain all necessary records for the
administration of the Plan;
(5) to interpret, in its sole and absolute
discretion, the provisions of the Plan and to make and publish
such rules for regulation of the Plan as are consistent with
the terms hereof;
(6) to determine the size and type of any Contract to
be purchased from any insurer, and to designate the insurer
from which such Contract shall be purchased;
(7) to compute and certify to the Employer and to the
Trustee from time to time the sums of money necessary or
desirable to be contributed to the Plan;
(8) to consult with the Employer and the Trustee
regarding the short and long-term liquidity needs of the Plan
in order that the Trustee can exercise any investment
discretion in a manner designed to accomplish specific
objectives; and
(9) to assist any Participant regarding his rights,
benefits, or elections available under the Plan.
2.5 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries, and others as required by law.
2.6 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.7 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.8 PAYMENT OF EXPENSES
14
<PAGE>
All expenses of administration may be paid out of the Trust Fund unless
paid by the Employer. However, in the event that any expense of administration
is directly attributable to a specific Participant's Aggregate Account, the
expenses may be paid out of the assets allocated to that Participant's Aggregate
Account. Such expenses shall include any expenses incident to the functioning of
the Administrator, including, but not limited to, fees of accountants, counsel,
and other specialists and their agents, and other costs of administering the
Plan. Until paid, the expenses shall constitute a liability of the Trust Fund.
However, the Employer may reimburse the Trust Fund for any administration
expense incurred. Any administration expense paid to the Trust Fund as a
reimbursement shall not be considered an Employer contribution.
2.9 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.3, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.10 QUALIFIED DOMESTIC RELATIONS ORDER PROCEDURES
In the case of any domestic relations order ("Order") received with
respect to the Plan, its status under the Code and Act shall be determined under
the following provisions:
(a) Notification of Receipt. Promptly upon receipt of an
Order, the Administrator will notify in writing each person named
therein, at the address specified in the Order (if applicable), of the
receipt by the Plan of the Order and forward to them notification of
the procedures set forth in this Section 2.10. In addition, with
respect to any amounts that are distributable, the Administrator shall
separately account under the Plan for all (i) payments required by the
Order, and (ii) portions of payments otherwise payable that would be
affected by the Order which come due after the Administrator's receipt
of the Order.
(b) Review of Order. The Administrator will ascertain, with
the assistance of legal counsel, as appropriate, whether:
(1) The copy of the Order is certified;
(2) The Order is a judgment, decree, or order
(including approval of a property settlement agreement),
issued by a court, relating to the provision of child support,
alimony payments, or marital property rights to a spouse,
former spouse, child, or other dependent of a Participant;
(3) The Order specifies the name and full mailing
address of the Participant and each alternate payee, or if
not, that the information is available from the records of the
Plan or Employer;
(4) The Order clearly identifies the Plan or plan(s)
affected;
15
<PAGE>
(5) Payment pursuant to the Order would neither
increase the Participant's benefits nor change the terms of
the Plan;
(6) The Order clearly specifies the amount or
percentage of the Participant's Vested benefit to be paid to
each alternate payee or the manner in which such amount or
percentage is to be determined; and
(7) The Order clearly specifies the time when
payments to any alternate payee are to begin and, if
applicable, the period during which any such payments are to
continue and the time any such payments shall cease.
(c) Notification of Qualified Status. When the Administrator
is satisfied that the Order satisfies the requirements to be a
"qualified domestic relations order," the Administrator shall notify in
writing all persons named in the Order and any representatives
designated in writing by such persons ("Interested Parties") that a
tentative determination has been made that the Order is a "qualified
domestic relations order."
If no Interested Party disputes this determination within 60
days of receipt of such notice, then the Administrator shall proceed as
though a final determination has been made that the Order is a
"qualified domestic relations order." If any Interested Party disputes
this determination within 60 days of receipt of such notice, then the
Administrator will refer such dispute to legal counsel for further
advice concerning the resolution of the dispute.
(d) Notification of Non-Qualified Status. If it appears the
Order is not a "qualified domestic relations order," the Administrator
shall notify in writing all Interested Parties that a tentative
determination has been made that the Order is not a "qualified domestic
relations order." Such notice shall state the reasons for such
determination.
(e) Final Determination Made. If, within 18 months of receipt
of an Order, a final determination is made that the Order (as modified,
if applicable) is a "qualified domestic relations order," the
Administrator shall follow the terms of such Order. The Administrator
shall authorize distribution of the amounts subject to the "qualified
domestic relations order" to the alternate payee.
(f) No Final Determination Made. If, within 18 months of
receipt of an Order, no final determination has been made that the
Order is a "qualified domestic relations order", the Administrator
shall notify all Interested Parties in writing of such fact and amounts
held in the Plan shall be held for the benefit of or distributed to the
person who would have been entitled to such amounts if there had been
no Order. If it is subsequently determined that the Order (as modified,
if applicable) is a "qualified domestic relations order," then the
"qualified domestic relations order" shall be applied prospectively
only.
2.11 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the Administrator
on forms supplied by the Employer. Written notice of the disposition of a claim
shall be furnished to the claimant within
16
<PAGE>
90 days after the application is filed. In the event the claim is denied, the
reasons for the denial shall be specifically set forth in the notice in language
calculated to be understood by the claimant, pertinent provisions of the Plan
shall be cited, and, where appropriate, an explanation as to how the claimant
can perfect the claim will be provided. In addition, the claimant shall be
furnished with an explanation of the Plan's claims review procedure.
2.12 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.11
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.11. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon five (5) business days written notice to the Administrator)
the claimant or his representative shall have an opportunity to review all
documents in the possession of the Administrator which are pertinent to the
claim at issue and its disallowance. Either the claimant or the Administrator
may cause a court reporter to attend the hearing and record the proceedings. In
such event, a complete written transcript of the proceedings shall be furnished
to both parties by the court reporter. The full expense of any such court
reporter and such transcripts shall be borne by the party causing the court
reporter to attend the hearing. A final decision as to the allowance of the
claim shall be made by the Administrator within 60 days of receipt of the appeal
(unless there has been an extension of 60 days due to special circumstances,
provided the delay and the special circumstances occasioning it are communicated
to the claimant within the 60 day period). Such communication shall be written
in a manner calculated to be understood by the claimant and shall include
specific reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed one (1) Year of Service and has
attained his 18th birthday shall be eligible to participate hereunder as of the
date he has satisfied such requirements. The Employer shall give each
prospective Eligible Employee written notice of his eligibility to participate
in the Plan prior to the close of the Plan Year in which he first becomes an
Eligible Employee.
3.2 EFFECTIVE DATE OF PARTICIPATION
17
<PAGE>
An Eligible Employee shall become a Participant effective as of the
earlier of the first day of the Plan Year or the first day of the seventh month
of such Plan Year coinciding with or next following the date such Employee meets
the eligibility requirements of Section 3.1, provided said Employee is still
employed as of such date (or if not employed on such date, as of the date of
rehire if five (5) consecutive 1-Year Breaks in Service have not occurred).
3.3 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review pursuant to Section 2.12.
3.4 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification
of an Eligible Employee to an ineligible Employee, such Former
Participant shall continue to vest in his interest in the Plan for each
Year of Service completed while a noneligible Employee until such time
as his Participant's Account shall be forfeited or distributed pursuant
to the terms of the Plan. Additionally, his interest in the Plan shall
continue to share in the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate but
has not incurred a 1-Year Break in Service, such Employee will
participate immediately upon returning to an eligible class of
Employees. If such Participant incurs a 1-Year Break in Service,
eligibility will be determined under the break in service rules of the
Plan.
(c) In the event an Employee who is not a member of an
eligible class of Employees becomes a member of an eligible class, such
Employee will participate immediately if such Employee would have
otherwise previously become a Participant.
3.5 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.6 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a
18
<PAGE>
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to such contribution. In
such event, the amount contributed with respect to the ineligible person shall
constitute a Forfeiture for the Plan Year in which the discovery is made.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
(a) Discretionary Contribution. For each Plan Year, the
Employer shall contribute to the Plan a discretionary amount of not
less than the amount required to pay any Current Obligations of the
Trust Fund which shall be allocated in accordance with the provisions
of Section 4.3(b).
(b) Maximum Amount Allowable. Notwithstanding the foregoing,
however, the Employer's contribution for any Plan Year shall not exceed
the maximum amount allowable as a deduction to the Employer under the
provisions of Code Section 404. All contributions by the Employer shall
be made in cash or in such property as is acceptable to the Trustee.
(c) Top Heavy Contribution. Except, however, to the extent
necessary to provide the top heavy minimum allocations, the Employer
shall made a contribution even if it exceeds the amount which is
deductible under Code Section 404.
4.2 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
Employer contributions will be paid in cash, Company Stock or other
property as the Employer may from time to time determined. Company Stock and
other property will be valued at their then fair market value. The Employer
shall pay to the Trustee its contribution to the Plan for each Plan Year within
the time prescribed by law, including extensions of time, for the filing of the
Employer's federal income tax return for the Fiscal Year.
4.3 ALLOCATION OF CONTRIBUTION AND EARNINGS
(a) Establishment of Account. The Administrator shall
establish and maintain an account in the name of each Participant to
which the Administrator shall credit as of each Anniversary Date all
amounts allocated to each such Participant as set forth herein.
19
<PAGE>
[This page is intentionally left blank]
20
<PAGE>
(b) Employer Contributions. The Employer shall provide the
Administrator with all information required by the Administrator to
make a proper allocation of the Employer's contribution for each
allocation period. Within a reasonable period of time after the date of
receipt by the Administrator of such information, the Administrator
shall allocate such contribution to each Participant's Account in the
same proportion that each such Participant's Compensation for the year
bears to the total Compensation of all Participants for such year.
Except, however, only Participants who are actively employed
on the last day of the Plan Year shall be eligible to share in the
allocation of the Employer's discretionary contribution for the Plan
Year, unless required pursuant to Section 4.3(h).
(c) Company Stock. The Company Stock Account of each
Participant shall be credited as of each Anniversary Date with his
allocable share of Company Stock (including fractional shares)
purchased and paid for by the Plan or contributed in kind by the
Employer. Stock dividends on Company Stock held in his Company Stock
Account shall be credited to his Company Stock Account when paid. Cash
dividends on Company Stock held in his Company Stock Account shall, in
the sole discretion of the Administrator, either be credited to his
Other Investments Account when paid or used to repay an Exempt Loan;
provided, however, that when cash dividends are used to repay an Exempt
Loan, Company Stock shall be released from the Unallocated Company
Stock Suspense Account and allocated to the Participant's Company Stock
Account pursuant to Section 4.3(f) and, provided further, that Company
Stock allocated to each Participant's Company Stock Account shall have
a fair market value not less than the amount of cash dividends which
would have been allocated to such Participant's Other Investments
Accounts for the year.
Company Stock acquired by the Plan with the proceeds of an
Exempt Loan shall only be allocated to each Participant's Company Stock
Account upon release from the Unallocated Company Stock Suspense
Account as provided in this Section 4.3(c) and Section 4.3(f) herein.
Company Stock acquired with the proceeds of an Exempt Loan shall be an
asset of the Trust Fund and maintained in the Unallocated Company Stock
Suspense Account.
(d) Earnings and Losses. As of each Anniversary Date or other
Valuation Date, any earnings or losses (net appreciation or net
depreciation) of the Trust Fund (exclusive of Company Stock) shall be
allocated in the same proportion that each Participant's and Former
Participant's time weighted averaged (based on beginning year base)
nonsegregated accounts (other than each Participant's Company Stock
Account) bear to the total of all Participants' and Former
Participants' time weighted average (based on beginning year base)
nonsegregated accounts (other than Participants' Company Stock
Accounts) as of such date.
Earnings or losses do not include the interest paid under any
installment contract for the purchase of Company Stock by the Trust
Fund or on any loan used by the Trust Fund to purchase Company Stock,
nor does it include income received by the Trust Fund with
21
<PAGE>
respect to Company Stock acquired with the proceeds of an Exempt Loan;
all income received by the Trust Fund from Company Stock acquired with
the proceeds of an Exempt Loan may, at the discretion of the
Administrator, be used to repay such loan.
(e) Insurance. Participants' accounts shall be debited for any
insurance or annuity premiums paid, if any, and credited with any
dividends received on insurance contracts.
(f) Unallocated Company Stock Suspense Account. All Company
Stock acquired by the Plan with the proceeds of an Exempt Loan must be
added to and maintained in the Unallocated Company Stock Suspense
Account. Such Company Stock shall be released and withdrawn from that
account as if all Company Stock in that account were encumbered. For
each Plan Year during the duration of the loan, the number of shares of
Company Stock released shall equal the number of encumbered shares held
immediately before release for the current Plan Year multiplied by a
fraction, the numerator of which is the amount of principal and
interest paid for the Plan Year and the denominator of which is the sum
of the numerator plus the principal and interest to be paid for all
future Plan Years. As of each Anniversary Date, the Plan must
consistently allocate to each Participant's Account, in the same manner
as employer discretionary contributions pursuant to Section 4.1(a) are
allocated, non-monetary units (shares and fractional shares of Company
Stock) representing each Participant's interest in Company Stock
withdrawn from the Unallocated Company Stock Suspense Account.
However, Company Stock released from the Unallocated Company
Stock Suspense Account with cash dividends pursuant to Section 4.3(c)
shall be allocated to each Participant's Company Stock Account in the
same proportion that each such Participant's number of shares of
Company Stock sharing in such cash dividends bears to the total number
of shares of all Participants' Company Stock sharing in such cash
dividends. Income earned with respect to Company Stock in the
Unallocated Company Stock Suspense Account shall be used, at the
discretion of the Administrator, to repay the Exempt Loan used to
purchase such Company Stock. Company Stock released from the
Unallocated Company Stock Suspense Account with such income, and any
income which is not so used, shall be allocated as of each Anniversary
Date or other Valuation Date in the same proportion that each
Participant's and Former Participant's nonsegregated accounts after the
allocation of any earnings or losses pursuant to Section 4.3(d) bear to
the total of all Participants' and Former Participants' nonsegregated
accounts after the allocation of any earnings or losses pursuant to
Section 4.3(d).
(g) Forfeitures. Under this Plan, Participant accounts are
100% Vested at all times.
(h) Minimum Allocations Required for Top Heavy Plan Years.
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the contributions allocated to the Participant's Account of each
Non-Key Employee shall be equal to at least
22
<PAGE>
three percent (3%) of such Non-Key Employee's "415
Compensation". However, if (i) the sum of the contributions
allocated to the Participant's Account of each Key Employee
for such Top Heavy Plan Year is less than three percent (3%)
of each Key Employee's "415 Compensation" and (ii) this Plan
is not required to be included in an Aggregation Group to
enable a defined benefit Plan to meet the requirements of Code
Section 401(a)(4) or 410, the sum of the contributions
allocated to the Participant's Account of each Non-Key
Employee shall be equal to the largest percentage allocated to
the Participant's Account of any Key Employee.
However, no such minimum allocation shall be required in this
Plan for any Non-Key Employee who participates in another defined
contribution Plan subject to Code Section 412 providing such benefits
included with this Plan in a Required Aggregation Group. If any Non-Key
Employee participates in another defined contribution Plan not subject
to Code Section 412 providing such benefits included with this Plan in
a Required Aggregation Group, this Plan shall provide the minimum
allocation.
(i) Minimum Allocation for Key Employees. Notwithstanding
Section 4.1, for purposes of the minimum allocations set forth above,
the percentage allocated to the Participant's Account of any Key
Employee shall be equal to the ratio of the sum of the contributions
allocated on behalf of such Key Employee divided by the "415
Compensation" for such Key Employee. However if the minimum allocation
set forth above is less than three percent (3%) of the Non-Key
Employees' "415 Compensation," amounts contributed as a result of a
salary reduction agreement must be included in determining the
contributions allocated to the Key Employees.
(j) Employment Requirements for Minimum Allocations. For any
Top Heavy Plan Year, the minimum allocations set forth above shall be
allocated to the Participant's Account of all Non-Key Employees who are
Participants and who are employed by the Employer on the last day of
the Plan Year, including Non-Key Employees who (1) failed to complete a
Year of Service; (2) declined to make mandatory contributions (if
required) to the Plan; and (3) had been excluded from participation
because of their level of Compensation.
(k) Limitation on Compensation. In addition to other
applicable limitations set forth in the Plan, and notwithstanding any
other provision of the Plan to the contrary, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the
Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") annual
compensation limit. The OBRA '93 annual compensation limit is $150,000,
as adjusted by the Internal Revenue Service for increases in the cost
of living in accordance with Code Section 401(a)(17)(B). The
cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which Compensation is determined
(determination period), beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period,
and the denominator of which is 12.
23
<PAGE>
Any reference in this Plan to the limitation under Code
Section 401(a)(17) shall mean the OBRA '93 annual compensation limit
set forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the
current Plan Year, the Compensation for that prior determination period
is subject to the OBRA '93 annual compensation limit in effect for that
prior determination period.
(l) Separate Accounts for Reemployed Participants. If a Former
Participant is reemployed after five (5) consecutive l-Year Breaks in
Service, then separate accounts shall be maintained as follows:
(1) one account for nonforfeitable benefits
attributable to pre-break service; and
(2) one account representing his status in the Plan
attributable to post-break service.
(m) Failsafe Contribution. Notwithstanding anything to the
contrary, if this is a Plan that would otherwise fail to meet the
requirements of Code Sections 410(b)(1) or 410(b)(2)(A)(i) and the
Regulations thereunder because Employer contributions have not been
allocated to a sufficient number or percentage of Participants for a
Plan Year, then the following rules shall apply:
(1) The group of Participants eligible to share in
the Employer's contribution for the Plan Year shall be
expanded to include the minimum number of Participants who
would not otherwise be eligible as are necessary to satisfy
the applicable test specified above. The specific Participants
who shall become eligible under the terms of this paragraph
shall be those who are actively employed on the last day of
the Plan Year and, when compared to similarly situated
Participants, have completed the greatest number of Hours of
Service in the Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share in the Employer's contribution
for the Plan Year shall be further expanded to include the
minimum number of Participants who are not actively employed
on the last day of the Plan Year as are necessary to satisfy
the applicable test. The specific Participants who shall
become eligible to share shall be those Participants, when
compared to similarly situated Participants, who have
completed the greatest number of Hours of Service in the Plan
Year before terminating employment.
(3) Nothing in this Section shall permit the
reduction of a Participant's accrued benefit. Therefore any
amounts that have previously been allocated to Participants
may not be reallocated to satisfy these requirements. In such
event, the Employer shall make an additional contribution
equal to the amount such affected Participants would have
received had they been included in the allocations, even if it
24
<PAGE>
exceeds the amount which would be deductible under Code
Section 404. Any adjustment to the allocations pursuant to
this paragraph shall be considered a retroactive amendment,
consistent with the provisions of the Code and Regulations.
4.4 MAXIMUM ANNUAL ADDITIONS
(a) Limits on Annual Additions. Notwithstanding any other
provisions of the Plan, contributions and other additions with respect
to a Participant exceed the limitation of Code Section 415(c) if, when
expressed as an annual addition (within the meaning of Code Section
415(c)(2) to the Participant's Account, such annual addition is greater
than the lesser of:
(1) $30,000, or
(2) 25 percent of the Participant's compensation (as
defined in Code Section 415(c)(3).
For any short "limitation year," the dollar limitation in (1), above,
shall be reduced by a fraction, the numerator of which is the number of
full months in the short "limitation year" and the denominator of which
is twelve (12).
(b) Annual Additions. For purposes of applying the limitations
of Code Section 415, "annual additions" means the sum credited to a
Participant's accounts for any "limitation year" of (1) Employer
contributions, (2) Employee contributions for "limitation years"
beginning after December 31, 1986, (3) Forfeitures, (4) amounts
allocated, after March 31, 1984, to an individual medical account, as
defined in Code Section 415(l)(2) which is part of a pension or annuity
Plan maintained by the Employer, and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years
ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a key employee
(as defined in Code Section 419A(d)(3)) under a welfare benefit Plan
(as defined in Code Section 419(e)) maintained by the Employer. Except,
however, the "415 Compensation" percentage limitation referred to in
paragraph (a)(2) above shall not apply to: (1) any contribution for
medical benefits (within the meaning of Code Section 419A(f)(2)) after
separation from service which is otherwise treated as an "annual
addition," or (2) any amount otherwise treated as an "annual addition"
under Code Section 415(l)(l).
(c) Exceptions to Annual Additions. For purposes of applying
the limitations of Code Section 415, the following are not "annual
additions": (1) the transfer of funds from one qualified Plan to
another and (2) provided no more than one-third of the Employer
contributions for the year are allocated to Highly Compensated
Participants, Forfeitures of Company Stock purchased with the proceeds
of an Exempt Loan and Employer contributions applied to the payment of
interest on an Exempt Loan. In addition, the following are not Employee
contributions for the purposes of Section 4.4(b)(2): (1) rollover
contributions (as defined in Code Sections 402(a)(5), 403(a)(4),
403(b)(8), and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions
25
<PAGE>
received by an Employee pursuant to Code Section 411(a)(7)(B) (i.e.,
cash-outs); (4) repayments of distributions received by an Employee
pursuant to Code Section 411(a)(3)(D) (i.e., mandatory contributions);
and (5) Employee contributions to a simplified employee pension
excludable from gross income under Code Section 408(k)(6).
(d) Limitation Year. For purposes of applying the limitations
of Code Section 415, the "limitation year" shall be the Plan Year.
(e) Annual Adjustments to Limitation. The dollar limitation
under Code Section 415(b)(1)(A) stated in paragraph (a)(1) above shall
be adjusted annually as provided in Code Section 415(d) pursuant to the
Regulations. The adjusted limitation is effective as of January 1 of
each calendar year and is applicable to "limitation years" ending with
or within that calendar year.
(f) Consolidation of Plans. For the purpose of this Section,
all qualified defined benefit plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined benefit
Plan, and all qualified defined contribution plans (whether terminated
or not) ever maintained by the Employer shall be treated as one defined
contribution Plan.
(g) Consolidation of Employers. For the purpose of this
Section, if the Employer is a member of a controlled group of
corporations, trades, or businesses under common control (as defined by
Code Section 1563(a) or Code Section 414(b) and (c), as modified by
Code Section 415(h)), is a member of an affiliated service group (as
defined by Code Section 414(m)), or is a member of a group of entities
required to be aggregated pursuant to Regulations under Code Section
414(o), all Employees of such Employers shall be considered to be
employed by a single Employer.
(h) Consolidation of Employers under Code Section 413. For the
purpose of this Section, if this Plan is a Code Section 413(c) Plan,
all Employers of a Participant who maintain this Plan will be
considered to be a single Employer.
(i) Special Rules Where Participants Are in More Than One
Defined Contribution Plan.
(1) If a Participant participates in more than one
defined contribution Plan maintained by the Employer which
have different Anniversary Dates, the maximum "annual
additions" under this Plan shall equal the maximum "annual
additions" for the "limitation year" minus any "annual
additions" previously credited to such Participant's accounts
during the "limitation year".
(2) If a Participant participates in both a defined
contribution Plan subject to Code Section 412 and a defined
contribution Plan not subject to Code Section 412 maintained
by the Employer which have the same Anniversary Date, "annual
additions" will be credited to the Participant's accounts
under the defined contribution Plan subject to Code Section
412 prior to crediting "annual additions"
26
<PAGE>
to the Participant's accounts under the defined contribution
Plan not subject to Code Section 412.
(3) If a Participant participates in more than one
defined contribution Plan not subject to Code Section 412
maintained by the Employer which have the same Anniversary
Date, the maximum "annual additions" under this Plan shall
equal the product of (A) the maximum "annual additions" for
the "limitation year" minus any "annual additions" previously
credited under subparagraphs (l) or (2) above, multiplied by
(B) a fraction (i) the numerator of which is the "annual
additions" which would be credited to such Participant's
accounts under this Plan without regard to the limitations of
Code Section 415 and (ii) the denominator of which is such
"annual additions" for all plans described in this
subparagraph.
(j) Future Adjustment. Notwithstanding anything contained in
this Section to the contrary, the limitations, adjustments, and other
requirements prescribed in this Section shall at all times comply with
the provisions of Code Section 415 and the Regulations thereunder, the
terms of which are specifically incorporated herein by reference.
4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) Procedure for Adjustments For Excessive Annual Addition.
If, as a result of the allocation of Forfeitures, a reasonable error in
estimating a Participant's Compensation, a reasonable error in
determining the amount of elective deferrals (within the meaning of
Code Section 402(g)(3)), or other facts and circumstances to which
Regulation 1.415-6(b)(6) shall be applicable, the "annual additions"
under this Plan would cause the maximum "annual additions" to be
exceeded for any Participant, the Administrator shall treat the excess
in accordance with one of the following methods: (1) distribute any
elective deferrals or return any Employee contributions (whether
voluntary or mandatory), and distribute the gains attributable to those
elective deferrals and Employee contributions, to the extent that the
distribution or return would reduce the "excess amount" in the
Participant's accounts, (2) allocate and reallocate the "excess
amounts" to the other Participants' accounts to the extent that the
Section 415 limitations are not exceeded with respect to such
Participants, (3) hold any "excess amount" remaining after the return
of any voluntary Employee contributions in a "Section 415 suspense
account" and use the "Section 415 suspense account" in the next
"limitation year" (and succeeding limitation years if necessary) to
reduce Employer contributions for that Participant if that Participant
is covered by the Plan as of the end of the "limitation year," or if
the Participant is not so covered, allocate and reallocate the "Section
415 suspense account" in the next "limitation year" (and succeeding
limitation years if necessary) to all Participants in the Plan before
any Employer or Employee contributions which would constitute "annual
additions" are made to the Plan for such "limitation year" or (4)
reduce Employer contributions to the Plan for such "limitation year" by
the amount of the "Section 415 suspense account" allocated and
reallocated during such "limitation year."
27
<PAGE>
(b) Determination of Excess Amounts. For purposes of this
Article, "excess amount" for any Participant for a "limitation year"
shall mean the excess, if any, of (l) the "annual additions" which
would be credited to his account under the terms of the Plan without
regard to the limitations of Code Section 415 over (2) the maximum
"annual additions" determined pursuant to Section 4.4.
(c) Section 415 Suspense Account. For purposes of this
Section, "Section 415 suspense account" shall mean an unallocated
account equal to the sum of "excess amounts" for all Participants in
the Plan during the "limitation year." The "Section 415 suspense
account" shall not share in any earnings or losses of the Trust Fund.
(d) Limitation on Distribution of Excess Amounts. The Plan may
not distribute "excess amounts," other than voluntary Employee
contributions, to Participants or Former Participants.
4.6 DIRECTED INVESTMENT ACCOUNT
(a) Diversification Requirements. Each "Qualified Participant"
(as hereafter defined) may elect within ninety (90) days after the
close of each Plan Year during the "Qualified Election Period" (as
hereafter defined) to direct the Trustee in writing as to the
investment of 25 percent of the total number of shares of Company Stock
acquired by or contributed to the Plan that have ever been allocated to
such Qualified Participant's Company Stock Account (reduced by the
number of shares of Company Stock previously invested pursuant to a
prior election). In the case of the election year in which the
Participant can make his last election, the preceding sentence shall be
applied by substituting "50 percent" for "25 percent". If the Qualified
Participant elects to direct the Trustee as to the investment of his
Company Stock Account, such direction shall be effective no later than
180 days after the close of the Plan Year to which such direction
applies.
Notwithstanding the above, if the fair market value
(determined pursuant to Section 6.1 at the Plan Valuation Date
immediately preceding the first day on which a Qualified participant is
eligible to make an election) of Company Stock acquired or contributed
to the Plan and allocated to a Qualified Participant's Company Stock
Account is $500 or less, then such Company Stock shall not be subject
to this paragraph. For purposes of determining whether the fair market
value exceeds $500, Company Stock held in accounts of all employee
stock ownership plans (as defined in Code Section 4975(e)(7)) and tax
credit employee stock ownership plans (as defined in Code Section
409(a)) maintained by the Employer or any Affiliated Employer shall be
considered as held by the Plan.
For the purposes of this Section, the following definitions
shall apply:
(1) "Qualified Participant" means any Participant or
Former Participant who has completed ten (10) Years of Service
as a Participant and has attained age 55.
28
<PAGE>
(2) "Qualified Election Period" means the six (6)
Plan Year period beginning with the later of (i) the first
Plan Year in which the Participant first became a "Qualified
Participant", or (ii) the first Plan Year beginning after
December 31, 1986.
(b) Accounting. A separate Directed Investment Account shall
be established for each Participant who has directed an investment.
Transfers between the Participant's regular account and his Directed
Investment Account shall be charged and credited as the case may be to
each account. The Directed Investment Account shall not share in Trust
Fund earnings, but it shall be charged or credited as appropriate with
the net earnings, gains, losses, and expenses as well as any
appreciation or depreciation in market value during each Plan Year
attributable to such account.
4.7 TOP HEAVY RULES
(a) Top Heavy Plan Requirements. For any Top Heavy Plan Year,
the Plan shall provide the special vesting requirements of Code Section
416(b) pursuant to Section 7.5 of the Plan and the special minimum
allocation requirements of Code Section 416(c) pursuant to Section 4.3
of the Plan.
(b) Determination of Top Heavy Status. This Plan shall be a
Top Heavy Plan for any Plan Year in which, as of the Determination
Date, (1) the Present Value of Accrued Benefits of Key Employees and
(2) the sum of the Aggregate Accounts of Key Employees under this Plan
and all plans of an Aggregation Group, exceeds sixty percent (60%) of
the Present Value of Accrued Benefits and the Aggregate Accounts of all
Key and Non-Key Employees under this Plan and all plans of an
Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate Account
balance shall not be taken into account for purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether
any Aggregation Group which includes this Plan is a Top Heavy Group).
In addition, if a Participant or Former Participant has not performed
any services for any Employer maintaining the Plan at any time during
the five year period ending on the Determination Date, any accrued
benefit for such Participant or Former Participant shall not be taken
into account for the purposes of determining whether this Plan is a Top
Heavy or Super Top Heavy Plan.
(c) Super Top Heavy Status. This Plan shall be a Super Top
Heavy Plan for any Plan Year in which, as of the Determination Date,
(1) the Present Value of Accrued Benefits of Key Employees and (2) the
sum of the Aggregate Accounts of Key Employees under this Plan and all
plans of an Aggregation Group, exceeds ninety percent (90%) of the
Present Value of Accrued Benefits and the Aggregate Accounts of all Key
and Non-Key Employees under this Plan and all plans of an Aggregation
Group.
29
<PAGE>
(d) Aggregate Account. A Participant's Aggregate Account as of
the Determination Date is the sum of the following:
(1) his Participant's Account balance as of the most
recent valuation occurring within a 12 month period ending on
the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the Valuation Date but due
on or before the Determination Date, except for the first Plan
Year when such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year;
(3) any Plan distributions made within the Plan Year
that includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of distribution
made after the Valuation Date and prior to the Determination
Date, such distributions are not included as distributions for
top heavy purposes to the extent that such distributions are
already included in the Participant's Aggregate Account
balance as of the Valuation Date. Notwithstanding anything
herein to the contrary, all distributions, including
distributions made prior to January 1, 1987, and distributions
under a terminated plan which if it had not been terminated
would have been required to be included in an Aggregation
Group, will be counted. Further, distributions from the Plan
(including the cash value of life insurance policies) of a
Participant's account balance because of death shall be
treated as a distribution for the purposes of this paragraph;
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified deductible employee contributions shall not be
considered to be a part of the Participant's Aggregate Account
balance;
(5) with respect to unrelated rollovers and
plan-to-plan transfers (ones which are both initiated by the
Employee and made from a plan maintained by one employer to a
plan maintained by another employer), if this Plan provides
the rollovers or plan-to-plan transfers, it shall always
consider such rollovers or plan-to-plan transfers as a
distribution for the purposes of this Section. If this Plan is
the plan accepting such rollovers or plan-to-plan transfers,
it shall not consider such rollovers or plan-to-plan transfers
accepted after December 31, 1983 as part of the Participant's
Aggregate Account balance. However, rollovers or plan-to-plan
transfers accepted prior to January 1, 1984 shall be
considered as part of the Participant's Aggregate Account
Balance;
(6) with respect to related rollovers and
plan-to-plan transfers (ones either not initiated by the
Employee or made to a plan maintained by the same employer),
if this Plan provides the rollover or plan-to-plan transfer,
it shall not be counted as a distribution for purposes of this
Section. If this Plan is the plan
30
<PAGE>
accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective of the
date on which such rollover or plan-to-plan transfer is
accepted;
(7) for the purposes of determining whether two
employers are to be treated as the same employer in (5) and
(6) above, all employers aggregated under Code Section 414(b),
(c), (m), and (o) are treated as the same employer.
(e) Aggregation Group. Aggregation Group means either a
Required Aggregation Group or a Permissive Aggregation Group as
hereinafter determined.
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of the
Employer in which a Key Employee is a participant in the Plan
Year containing the Determination Date or any of the four
preceding Plan Years, and each other plan of the Employer
which enables any plan in which a Key Employee participates to
meet the requirements of Code Sections 401(a)(4) or 410, will
be required to be aggregated. Such group shall be known as a
Required Aggregation Group.
In the case of a Required Aggregation Group, each
plan in the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No plan in
the Required Aggregation Group will be considered a Top Heavy
Plan if the Required Aggregation Group is not a Top Heavy
Group.
(2) Permissive Aggregation Group: The Employer may
also include any other plan not required to be included in the
Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions of
Code Sections 401(a)(4) and 410. Such group shall be known as
a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy Plan if the
Permissive Aggregation Group is not a Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall
be aggregated in order to determine whether such plans are Top
Heavy Plans.
(4) An Aggregation Group shall include any terminated
plan of the Employer if it was maintained within the last five
(5) years ending on the Determination Date.
(f) Determination Date. Determination Date means (a) the last
day of the preceding Plan Year, or (b) in the case of the first Plan
Year, the last day of such Plan Year.
31
<PAGE>
(g) Present Value of Accrued Benefit. In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a Participant
other than a Key Employee, shall be as determined using the single
accrual method used for all plans of the Employer and Affiliated
Employers, or if no such single method exists, using a method which
results in benefits accruing not more rapidly than the slowest accrual
rate permitted under Code Section 411(b)(1)(C). The determination of
the Present Value of Accrued Benefit shall be determined as of the most
recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date except as provided in Code
Section 416 and the Regulations thereunder for the first and second
plan years of a defined benefit plan.
(h) Top Heavy Group. Top Heavy Group means an Aggregation
Group in which, as of the Determination Date, the sum of the following
exceed sixty percent (60%) of a similar sum determined for all
Participants.
(1) the Present Value of Accrued Benefits of Key
Employees under all defined benefit plans included in the
group; and
(2) the Aggregate Accounts of Key Employees under all
defined contribution plans included in the group.
ARTICLE V
FUNDING AND INVESTMENT POLICY
5.1 INVESTMENT POLICY
(a) Primary Investment. The Plan is designed to invest
primarily in Company Stock.
(b) Other Investments. With due regard to subparagraph (a)
above, the Administrator may also direct the Trustee to invest funds
under the Plan in other property described in the Trust or in life
insurance policies to the extent permitted by subparagraph (c) below,
or the Trustee may hold such funds in cash or cash equivalents.
(c) Insurance. With due regard to subparagraph (a) above, the
Administrator may also direct the Trustee to invest funds under the
Plan in insurance policies on the life of any "keyman" Employee. The
proceeds of a "keyman" insurance policy may not be used for the
repayment of any indebtedness owed by the Plan which is secured by
Company Stock. In the event any "keyman" insurance is purchased by the
Trustee, the premiums paid thereon during any Plan Year, net of any
policy dividends and increases in cash surrender values, shall be
treated as the cost of Plan investment and any death benefit or cash
surrender value received shall be treated as proceeds from an
investment of the Plan.
32
<PAGE>
(d) Purchase Contingencies. The Plan may not obligate itself
to acquire Company Stock from a particular holder thereof at an
indefinite time determined upon the happening of an event such as the
death of the holder.
(e) Put Options. The Plan may not obligate itself to acquire
Company Stock under a put option binding upon the Plan. However, at the
time a put option is exercised, the Plan may be given an option to
assume the rights and obligations of the Employer under a put option
binding upon the Employer.
(f) Fair Market Value. All purchases of Company Stock shall be
made at a price which, in the judgment of the Administrator, does not
exceed the fair market value thereof. All sales of Company Stock shall
be made at a price which, in the judgment of the Administrator, is not
less than the fair market value thereof. The valuation rules set forth
in Article VI shall be applicable.
5.2 EMPLOYER SECURITIES
The Plan is designed to invest primarily in "qualifying employer
securities", as that term is defined in the Act.
5.3 APPLICATIONS OF CASH
Employer contributions determined pursuant to Section 4.1(a) and other
cash received by the Trust Fund shall first be applied to pay any Current
Obligations of the Trust Fund.
5.4 TRANSACTIONS INVOLVING COMPANY STOCK
(a) Limitations upon Nonrecognition of Gain. No portion of the
Trust Fund attributable to (or allocable in lieu of) Company Stock
acquired by the Plan in a sale to which Code Section 1042 applies may
accrue or be allocated directly or indirectly under any plan maintained
by the Employer meeting the requirements of Code Section 401(a):
(1) during the "Nonallocation Period", for the
benefit of
(i) any taxpayer who makes an election under
Code Section 1042(a) with respect to Company Stock,
(ii) any individual who is related to the
taxpayer (within the meaning of Code Section 267(b)),
or
(2) for the benefit of any other person who owns
(after application of Code Section 318(a) applied without
regard to the employee trust exception in Code Section
318(a)(2)(B)(i)) more than 25 percent of
(i) any class of outstanding stock of the
Employer or Affiliated Employer which issued such
Company Stock, or
33
<PAGE>
(ii) the total value of any class of
outstanding stock of the Employer or Affiliated
Employer.
(b) Special Rule for Lineal Descendant. Except, however,
subparagraph (a)(1)(ii) above shall not apply to lineal descendants of
the taxpayer, provided that the aggregate amount allocated to the
benefit of all such lineal descendants during the "Nonallocation
Period" does not exceed more than five (5) percent of the Company Stock
(or amounts allocated in lieu thereof) held by the Plan which are
attributable to a sale to the Plan by any person related to such
descendants (within the meaning of Code Section 267(c)(4)) in a
transaction to which Code Section 1042 is applied.
(c) Period of Limitation. A person shall be treated as failing
to meet the stock ownership limitation under paragraph (a)(2) above if
such person fails such limitation:
(1) at any time during the one (1) year period ending
on the date of sale of Company Stock to the Plan or
(2) on the date as of which Company Stock is
allocated to Participants in the Plan.
(d) Nonallocation Period. For purposes of this Section,
"Nonallocation Period" means the period beginning on the date of the
sale of the Company Stock and ending on the later of:
(1) the date which is ten (10) years after the date
of sale, or
(2) the date of the Plan allocation attributable to
the final payment of the Exempt Loan incurred in connection
with such sale.
5.5 LOANS TO THE TRUST
(a) Use of Loan Proceeds. The Plan may borrow money for any
lawful purpose, provided the proceeds of an Exempt Loan are used within
a reasonable time after receipt only for any or all of the following
purposes:
(1) To acquire Company Stock.
(2) To repay such loan.
(3) To repay a prior Exempt Loan.
(b) Disqualified Pension Transaction. All loans to the Trust
which are made or guaranteed by a disqualified person must satisfy all
requirements applicable to Exempt Loans including but not limited to
the following:
34
<PAGE>
(1) The loan must be at a reasonable rate of
interest;
(2) The amount of interest paid shall not exceed the
amount of each payment which would be treated as interest
under standard loan amortization tables;
(3) Any collateral pledged to the creditor by the
Plan shall consist only of the Company Stock purchased with
the borrowed funds;
(4) Under the terms of the loan, any pledge of
Company Stock shall provide for the release of shares so
pledged on a pro-rata basis pursuant to Section 4.3(f);
(5) Under the terms of the loan, the creditor shall
have no recourse against the Plan except with respect to such
collateral, earnings attributable to such collateral, employer
contributions (other than contributions of Company Stock) that
are made to meet current obligations and earnings attributable
to such contributions;
35
<PAGE>
(6) The loan must be for a specific term and may not
be payable at the demand of any person, except in the case of
default;
(7) If the number of shares of Company Stock released
from the Unallocated Company Stock Suspense Account each year
is determined with respect to principal payments, the term of
the loan (including the sum of the expired duration of the
loan, any renewal period, any extension period, and the
duration of any new loan) shall not exceed ten (10) years;
(8) If the number of shares of Company Stock released
from the Unallocated Company Stock Suspense Account each year
is determined with respect to principal payments, the loan
must provide for annual payments of principal and interest at
a cumulative rate that is not less rapid at any time than
level annual payments of such amounts for ten (10) years;
(9) In the event of default upon an Exempt Loan, the
value of the Trust Fund transferred in satisfaction of the
Exempt Loan shall not exceed the amount of default. If the
lender is a disqualified person, an Exempt Loan shall provide
for a transfer of Trust Funds upon default only upon and to
the extent of the failure of the Plan to meet the payment
schedule of the Exempt Loan;
(10) Exempt Loan payments during a Plan Year must not
exceed an amount equal to (A) the sum, over all Plan Years, of
all contributions and cash dividends paid by the Employer to
the Plan with respect to such Exempt Loan and earnings on such
Employer contributions and cash dividends, less (B) the sum of
the Exempt Loan payments in all preceding Plan Years. A
separate accounting shall be maintained for such Employer
contributions, cash dividends and earnings until the Exempt
Loan is repaid.
(c) Definition. For purposes of this Section, the term
"disqualified person" means a person who is a Fiduciary, a person
providing services to the Plan, an Employer or Participating Employer
any of whose Employees are covered by the Plan, an employee
organization any of whose members are covered by the Plan, an owner,
direct or indirect, of 50% or more of the total combined voting power
of all classes of voting stock or of the total value of all classes of
the stock, or an officer, director, 10% or more shareholder, or a
highly compensated Employee.
36
<PAGE>
ARTICLE VI
VALUATIONS
6.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Valuation Date,
to determine the net worth of the assets comprising the Trust Fund as it exists
on the Valuation Date. In determining such net worth, the Trustee shall value
the assets comprising the Trust Fund at their fair market value as of the
Valuation Date and shall deduct all expenses for which the Trustee has not yet
obtained reimbursement from the Employer or the Trust Fund.
6.2 METHOD OF VALUATION
Valuations must be made in good faith and based on all relevant factors
for determining the fair market value of securities. In the case of a
transaction between a Plan and a disqualified person, value must be determined
as of the date of the transaction. For all other Plan purposes, value must be
determined as of the most recent Valuation Date under the Plan. An independent
appraisal will not in itself be deemed to be a good faith determination of value
with respect to a transaction between the Plan and a disqualified person.
However, in other cases, a determination of fair market value based on at least
an annual appraisal independently arrived at by a person who customarily makes
such appraisals and who is independent of any party to the transaction will be
deemed to be a good faith determination of value. Company Stock not readily
tradable on an established securities market shall be valued by an independent
appraiser meeting requirements similar to the requirements of the Regulations
prescribed under Code Section 170(a)(1).
ARTICLE VII
DETERMINATION AND DISTRIBUTION OF BENEFITS
7.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the
Employer and retire for the purposes hereof on his Early Retirement
Date or Normal Retirement Date. However, a Participant may postpone the
termination of his employment with the Employer to a later date, in
which event the participation of such Participant in the Plan,
including the right to receive allocations pursuant to Section 4.3
shall continue until his Late Retirement Date. Upon a Participant's
Retirement Date, or as soon thereafter as is practicable, the Trustee
shall distribute all amounts credited to such Participant's Account in
accordance with Section 7.5.
7.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Death of Participant. Upon the death of a Participant
before his Retirement Date or other termination of his employment, all
amounts credited to such Participant's Account shall become fully
Vested. If elected, distribution of the Participant's Account shall
37
<PAGE>
commence not later than one (1) year after the close of the Plan Year
in which such Participant's death occurs. The Administrator shall
direct the Trustee, in accordance with the provisions of Sections 7.5
and 7.6 to distribute the value of the deceased Participant's accounts
to the surviving Beneficiary designated by the Participant or, if none,
to the Participant's spouse, if living, or if there is no spouse
living, to the Participant's issue, per stirpes, or if neither the
Participant's spouse nor any of his issue are living, then to such
Participant's estate.
(b) Death of Former Participant. Upon the death of a Former
Participant, the Administrator shall direct the Trustee, in accordance
with the provisions of Sections 7.5 and 7.6, to distribute any
remaining amounts credited to the accounts of a deceased Former
Participant to any surviving Beneficiary designated by him or, if none,
to the Participant's spouse, if living, or if there is no spouse
living, to the Participant's issue, per stirpes, or if neither the
Participant's spouse nor any of his issue are living, then to such
Participant's estate.
(c) Proof of Death. The Administrator may require such proper
proof of death and such evidence of the right of any person to receive
payment of the value of the account of a deceased Participant or Former
Participant as the Administrator may deem desirable. The
Administrator's determination of death and of the right of any person
to receive payment shall be conclusive.
(d) Spouse as Primary Beneficiary. The Beneficiary of the
death benefit payable pursuant to this Section shall be the
Participant's spouse. Except, however, the Participant may designate a
Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the
Participant's Beneficiary, or
(2) the Participant is legally separated or has been
abandoned (within the meaning of local law) and the
Participant has a court order to such effect (and there is no
"qualified domestic relations order" as defined in Code
Section 414(p) which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made
on a form satisfactory to the Administrator. A Participant may at any
time revoke his designation of a Beneficiary or change his Beneficiary
by filing written notice of such revocation or change with the
Administrator. However, the Participant's spouse must again consent in
writing to any change in Beneficiary unless the original consent
acknowledged that the spouse had the right to limit consent only to a
specific Beneficiary and that the spouse voluntarily elected to
relinquish such right. In the event no valid designation of Beneficiary
exists at the time of the Participant's death, the death benefit shall
be payable to his estate.
38
<PAGE>
(e) Disclaimer by Beneficiary. In the event the designated, or
any successor, Beneficiary disclaims, in a manner qualifying under Code
Section 2518, all or any portion of the benefits payable to him
hereunder, the amount so disclaimed shall be payable in accordance with
the written directions of the Participant to the successor Beneficiary
designated by the Participant or provided under this Plan.
(f) Waiver of Beneficiary. Any consent by the Participant's
spouse to waive any rights to the death benefit must be in writing,
must acknowledge the effect of such waiver, and be witnessed by a Plan
representative or a notary public. Further, the spouse's consent must
be irrevocable and must acknowledge the specific non-spouse
Beneficiary. Any consent by a spouse shall be effective only with
respect to the spouse executing the consent.
7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior to
his Retirement Date or other termination of his employment, all amounts credited
to such Participant's Account shall become fully Vested. In the event of a
Participant's Total and Permanent Disability, the Trustee, in accordance with
the provisions of Sections 7.5 and 7.6, shall distribute to such Participant all
amounts credited to such Participant's Account as though he had retired. If such
Participant elects, distribution shall commence not later than one (1) year
after the close of the Plan Year in which Total and Permanent Disability occurs.
7.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) Time and Manner of Distribution. If a Participant's
employment with the Employer is terminated for any reason other than
death, Total and Permanent Disability or retirement, such Participant
shall be entitled to such benefits as are provided hereinafter pursuant
to this Section 7.4.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer (upon the Participant's death, Total and Permanent
Disability, Early or Normal Retirement). However, at the election of
the Participant, the Administrator shall direct the Trustee to cause
the entire Vested portion of the Terminated Participant's Account to be
payable as soon as administratively feasible after the Valuation Date
coinciding with or immediately following his termination of employment.
In the event that the Terminated Participant does not elect to commence
the distribution pursuant to the preceding sentence, such Terminated
Participant may elect to commence such distribution determined on the
last day of each succeeding Plan Year and payable in accordance with
Section 7.5 as soon as administratively feasible thereafter. Any
distribution under this paragraph shall be made in a manner which is
consistent with and satisfies the provisions of Sections 7.5 and 7.6,
including, but not limited to, all notice and consent requirements of
Code Section 411(a)(11) and the Regulations thereunder.
If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed $5,000
and has never exceeded $5,000 at the time
39
<PAGE>
of any prior distribution, the Administrator shall direct the Trustee
to cause the entire Vested benefit to be paid to such Participant in a
single lump sum as soon as administratively feasible after the
Valuation Date coinciding with or immediately following his termination
of employment.
For purposes of this Section 7.4, if the value of a Terminated
Participant's Vested benefit is zero, the Terminated Participant shall
be deemed to have received a distribution of such Vested benefit.
If a portion of a Participant's Account is forfeited, Company
Stock allocated to the Participant's Company Stock Account must be
forfeited only after the Participant's Other Investments Account has
been depleted. If interest in more than one class of Company Stock has
been allocated to a Participant's Account, the Participant must be
treated as forfeiting the same proportion of each such class.
(b) Vesting Schedule. A Participant shall become fully vested
in his Participant's Account immediately upon entry into the Plan.
(c) Discontinuance of Contribution or Termination of Plan.
Notwithstanding the vesting schedule above, upon the complete
discontinuance of the Employer's contributions to the Plan or upon any
full or partial termination of the Plan, all amounts credited to the
account of any affected Participant shall become 100% Vested and shall
not thereafter be subject to Forfeiture.
(d) Effect of Amendment; Election of Prior Vesting Schedule.
The computation of a Participant's nonforfeitable percentage of his
interest in the Plan shall not be reduced as the result of any direct
or indirect amendment to this Plan. For this purpose, the Plan shall be
treated as having been amended if the Plan provides for an automatic
change in vesting due to a change in top heavy status. In the event
that the Plan is amended to change or modify any vesting schedule, a
Participant with at least three (3) Years of Service as of the
expiration date of the election period may elect to have his
nonforfeitable percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such election, then such
Participant shall be subject to the new vesting schedule. The
40
<PAGE>
[This page is intentionally left blank]
41
<PAGE>
Participant's election period shall commence on the adoption date of
the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice
of the amendment from the Employer or Administrator.
(e) Reemployment of Participant; Determination of Vesting.
(1) If any Former Participant shall be reemployed by
the Employer before a 1-Year Break in Service occurs, he shall
continue to participate in the Plan in the same manner as if
such termination had not occurred.
(2) If a Former Participant is reemployed by the
Employer, he shall participate in the Plan immediately on his
date of reemployment.
7.5 DISTRIBUTION OF BENEFITS
(a) Form of Distribution. The Administrator, pursuant to the
election of the Participant, shall direct the Trustee to distribute to
a Participant or his Beneficiary any amount to which he is entitled
under the Plan in one or more of the following methods:
(1) One lump-sum payment;
(2) Payments over a period certain in monthly,
quarterly, semiannual, or annual installments. The period over
which such payment is to be made shall not extend beyond the
earlier of the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary)
or the limited distribution period provided for in Section
7.5(b).
However, the Administrator, in his discretion, may modify, in
a nondiscriminatory manner, the form of distribution by the elimination
of one or the other of the above methods, provided the Administrator
notifies Participants and Beneficiaries prior to the effective date of
such modification.
(b) Large Account Balance. Unless the Participant elects
otherwise in writing, distributions to a Participant or his Beneficiary
attributable to Company Stock shall be in substantially equal monthly,
quarterly, semiannual, or annual installments over a period not longer
than five (5) years. In the case of a Participant with an account
balance attributable to Company Stock in excess of $500,000, the five
(5) year period shall be extended one (1) additional year (but not more
than five (5) additional years) for each $100,000 or fraction thereof
by which such balance exceeds $500,000. The dollar limits shall be
adjusted at the same time and in the same manner as provided in Code
Section 415(d).
42
<PAGE>
(c) Distributions Prior to Normal Retirement Date. Any
distribution to a Participant who has a benefit that exceeds $5,000,
and has ever exceeded $5,000 at the time of any prior distribution,
shall require such Participant's consent if such distribution commences
prior to the later of his Normal Retirement Age or age 62. With regard
to this required consent:
(1) The Participant must be informed of his right to
defer receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any election
to defer the receipt of benefits shall not apply with respect
to distributions which are required under Section 7.5(e).
(2) Notice of the rights specified under this
paragraph shall be provided no less than 30 days and no more
than 90 days before the first day on which all events have
occurred which entitle the Participant to such benefit.
(3) Written consent of the Participant to the
distribution must not be made before the Participant receives
the notice and must not be made more than 90 days before the
first day on which all events have occurred which entitle the
Participant to such benefit.
(4) No consent shall be valid if a significant
detriment is imposed under the Plan on any Participant who
does not consent to the distribution.
Such distribution may commence less than 30 days after the
notice required under Regulation 1.411(a)-11(c) is given, provided
that: (1) the Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option),
and (2) the Participant, after receiving the notice, affirmatively
elects a distribution.
(d) Cash Dividends. Notwithstanding anything herein to the
contrary, the Administrator, in his sole discretion, may direct that
cash dividends on shares of Company Stock allocable to Participants' or
Former Participants' Company Stock Accounts be distributed to such
Participants or Former Participants within 90 days after the close of
the Plan Year in which the dividends are paid.
(e) Retained Benefits. Any part of a Participant's benefit
which is retained in the Plan after the Anniversary Date on which his
participation ends will continue to be treated as a Company Stock
Account or as an Other Investments Account (subject to Section 7.4(a))
as provided in Article IV. However, neither account will be credited
with any further Employer contributions.
43
<PAGE>
(f) Limitations on Distributions. Notwithstanding any
provision in the Plan to the contrary, the distribution of a
Participant's benefits shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9) and
the Regulations thereunder (including Regulation 1.401(a)(9)-2), the
provisions of which are incorporated herein by reference:
(1) A Participant's benefits shall be distributed to
him not later than April 1 of the calendar year following the
later of (i) the calendar year in which the Participant
attains age 70 1/2 or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii)
shall not apply in the case of a Participant who is a "five
percent (5%) owner" at any time during the five (5) Plan Year
period ending in the calendar year in which he attains age 70
1/2 or, in the case of a Participant who becomes a "five
percent (5%) owner" during any subsequent Plan Year, clause
(ii) shall no longer apply and the required beginning date
shall be the April 1 of the calendar year following the
calendar year in which such subsequent Plan Year ends.
Alternatively, distributions to a Participant must
begin no later than the applicable April 1 as determined under
the preceding paragraph and must be made over a period certain
measured by the life expectancy of the Participant (or the
life expectancies of the Participant and his designated
Beneficiary) in accordance with Regulations.
(2) Distributions to a Participant and his
Beneficiaries shall only be made in accordance with the
incidental death benefit requirements of Code Section
401(a)(9)(G) and the Regulations thereunder.
(g) Commencement of Death Benefits. Notwithstanding
any provision in the Plan to the contrary, distributions upon the death
of a Participant shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9) and
the Regulations thereunder. If it is determined pursuant to Regulations
that the distribution of a Participant's interest has begun and the
Participant dies before his entire interest has been distributed to
him, the remaining portion of such interest shall be distributed at
least as rapidly as under the method of distribution selected pursuant
to Section 7.5 as of his date of death. If a Participant dies before he
has begun to receive any distributions of his interest under the Plan
or before distributions are deemed to have begun pursuant to
Regulations, then his death benefit shall be distributed to his
Beneficiaries by December 31st of the calendar year in which the fifth
anniversary of his date of death occurs.
44
<PAGE>
However, the five-year distribution requirement of the
preceding paragraph shall not apply to any portion of the deceased
Participant's interest which is payable to or for the benefit of a
designated Beneficiary. In such event, such portion may, at the
election of the Participant (or the Participant's designated
Beneficiary), be distributed over the life of such designated
Beneficiary (or over a period not extending beyond the life expectancy
of such designated Beneficiary) provided such distribution begins not
later than December 31st of the calendar year immediately following the
calendar year in which the Participant died. However, in the event the
Participant's spouse (determined as of the date of the Participant's
death) is his Beneficiary, the requirement that distributions commence
within one year of a Participant's death shall not apply. In lieu
thereof, distributions must commence on or before the later of: (l)
December 31st of the calendar year immediately following the calendar
year in which the Participant died; or (2) December 31st of the
calendar year in which the Participant would have attained age 70 1/2.
If the surviving spouse dies before distributions to such spouse begin,
then the five-year distribution requirement of this Section shall apply
as if the spouse was the Participant.
(h) Election by Designated Beneficiary to Delay Commencement
of Benefits. For purposes of Section 7.5(f), the election by a
designated Beneficiary to be excepted from the five-year distribution
requirement must be made no later than December 31st of the calendar
year following the calendar year of the Participant's death. Except,
however, with respect to a designated Beneficiary who is the
Participant's surviving spouse, the election must be made by the
earlier of: December 31st of the calendar year immediately following
the calendar year in which the Participant died or, if later, the
calendar year in which the Participant would have attained age 70 1/2;
or (2) December 31st of the calendar year which contains the fifth
anniversary of the date of the Participant's death. An election by a
designated Beneficiary must be in writing and shall be irrevocable as
of the last day of the election period stated herein. In the absence of
an election by the Participant or a designated Beneficiary, the
five-year distribution requirement shall apply.
(i) Election to Redetermine Life Expectancy and Recalculate
Distribution Limitation. For purposes of this Section, the life
expectancy of a Participant and a Participant's spouse may, at the
election of the Participant or the Participant's spouse, be
redetermined in accordance with Regulations. The election, once made,
shall be irrevocable. If no election is made by the time distributions
must commence, then the life expectancy of the Participant and the
Participant's spouse shall not be subject to recalculation. Life
expectancy and joint and last survivor expectancy shall be computed
using the return multiples in Tables V and VI of Regulation 1.72-9.
(j) Time of Segregation or Distribution. Except as limited by
Sections 7.5 and 7.6, whenever the Trustee is to make a distribution or
to commence a series of payments on or as of an Anniversary Date, the
distribution or series of payments may be made or begun, on such date
or as soon thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits (such
election may not result in a death benefit that is more than
incidental), the payment of benefits shall begin not later than the
45
<PAGE>
60th day after the close of the Plan Year in which the latest of the
following events occurs: (a) the date on which the Participant attains
the earlier of age 65 or the Normal Retirement Age specified herein;
(b) the tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan; or (c) the date the Participant
terminates his service with the Employer.
(k) Separate Accounting Due to Distributions. If an in-service
distribution is made at a time when a Participant is not fully Vested
in his Participant's Account and the Participant may increase the
Vested percentage in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested
portion of the separate account shall be equal to an amount
("X") determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
7.6 HOW PLAN BENEFITS WILL BE DISTRIBUTED
(a) Right to Demand Distribution in Company Stock.
Distribution of a Participant's benefit may be made in cash or Company
Stock or both, provided, however, that if a Participant or Beneficiary
so demands, such benefit shall be distributed only in the form of
Company Stock. Prior to making a distribution of benefits, the
Administrator shall advise the Participant or his Beneficiary, in
writing, of the right to demand that benefits be distributed solely in
Company Stock.
(b) Satisfaction of Demand for Distribution. If a Participant
or Beneficiary demands that benefits be distributed solely in Company
Stock, distribution of a Participant's benefit will be made entirely in
whole shares or other units of Company Stock. Any balance in a
Participant's Other Investments Account will be applied to acquire for
distribution the maximum number of whole shares or other units of
Company Stock at the then fair market value. Any fractional unit value
unexpended will be distributed in cash. If Company Stock is not
available for purchase by the Trustee, then the Trustee shall hold such
balance until Company Stock is acquired and then make such
distribution, subject to Sections 7.5 and 7.6.
(c) Directions From Administrator. The Trustee will make
distribution from the Trust only on instructions from the
Administrator.
(d) Distribution of Company Stock Restricted by Charter or
By-Laws. Notwithstanding anything contained herein to the contrary, if
the Employer's charter or by-
46
<PAGE>
laws restrict ownership of substantially all shares of Company Stock to
Employees and the Trust Fund, as described in Code Section 409(h)(2),
the Administrator shall distribute a Participant's Account entirely in
cash without granting the Participant the right to demand distribution
in shares of Company Stock.
(e) Application of Restrictions. Except as otherwise provided
herein, Company Stock distributed by the Trustee may be restricted as
to sale or transfer by the by-laws or articles of incorporation of the
Employer, provided restrictions are applicable to all Company Stock of
the same class. If a Participant is required to offer the sale of his
Company Stock to the Employer before offering to sell his Company Stock
to a third party, in no event may the Employer pay a price less than
that offered to the distributee by another potential buyer making a
bona fide offer and in no event shall the Trustee pay a price less than
the fair market value of the Company Stock.
(f) Separate Classes of Stock. If Company Stock acquired with
the proceeds of an Exempt Loan (described in Section 5.5 hereof) is
available for distribution and consists of more than one class, a
Participant or his Beneficiary must receive substantially the same
proportion of each such class.
7.7 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Transfer to Minors Act or similar
statute as permitted by the laws of the state in which said Beneficiary resides.
Such a payment to the legal guardian, custodian, or parent of a minor
Beneficiary shall fully discharge the Trustee, Employer, and Plan from further
liability on account thereof.
7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to a
Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated as a Forfeiture
pursuant to the Plan. In the event a Participant or Beneficiary is located
subsequent to his benefit being reallocated, such benefit shall be restored.
7.9 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS
All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order." Furthermore, a distribution to an
"alternate payee" shall be permitted if such distribution is authorized by a
"qualified domestic relations order," even if the affected Participant has not
reached the "earliest retirement age" under the Plan. For the purposes of this
Section, "alternate payee,"
47
<PAGE>
"qualified domestic relations order" and "earliest retirement age" shall have
the meaning set forth under Code Section 414(p).
7.10 RIGHT OF FIRST REFUSALS
The provisions of this Section apply if the Board of Directors of the
Employer so determines and notice thereof is provided to all participants,
(a) Notice of Proposed Sale. If any Participant, his
Beneficiary or any other person to whom shares of Company Stock are
distributed from the Plan (the "Selling Participant") shall, at any
time, desire to sell some or all of such shares (the "Offered Shares")
to a third party (the "Third Party"), the Selling Participant shall
give written notice of such desire to the Employer and the
Administrator, which notice shall contain the number of shares offered
for sale, the proposed terms of the sale and the names and addresses of
both the Selling Participant and Third Party. Both the Trust Fund and
the Employer shall each have the right of first refusal for a period of
14 days from the date the Selling Participant gives such written notice
to the Employer and the Administrator (such 14 day period to run
concurrently against the Trust Fund and the Employer) to acquire the
Offered Shares. As between the Trust Fund and the Employer, the Trust
Fund shall have priority to acquire the shares pursuant to the right of
first refusal. The selling price and terms shall be the same as offered
by the Third Party.
(b) Limitations on Sale. If the Trust Fund and the Employer do
not exercise their right of first refusal within the required 14 day
period provided above, the Selling Participant shall have the right, at
any time following the expiration of such 14 day period to dispose of
the Offered Shares to the Third Party; provided, however, that (i) no
disposition shall be made to the Third Party on terms more favorable to
the Third Party than those set forth in the written notice delivered by
the Selling Participant above, and (ii) if such disposition shall not
be made to a Third Party on the terms offered to the Employer and the
Trust Fund, the Offered Shares shall again be subject to the right of
first refusal set forth above.
(c) Closing of Sale. The closing pursuant to the exercise of
the right of first refusal under Section 7.10(a) above shall take place
at such place agreed upon between the Administrator and the Selling
Participant, but not later than ten (10) days after the Employer or the
Trust Fund shall have notified the Selling Participant of the exercise
of the right of first refusal. At such closing, the Selling Participant
shall deliver certificates representing the Offered Shares duly
endorsed in blank for transfer, or with stock powers attached duly
executed in blank with all required transfer tax stamps attached or
provided for, and the Employer or the Trust Fund shall deliver the
purchase price, or an appropriate portion thereof, to the Selling
Participant.
(d) Company Stock Acquired with Proceeds of Exempt Loan.
Except as provided in this paragraph (d), no Company Stock acquired
with the proceeds of an Exempt Loan complying with the requirements of
Section 5.5 hereof shall be subject to a right of first refusal.
Company Stock acquired with the proceeds of an Exempt Loan, which is
48
<PAGE>
distributed to a Participant or Beneficiary, shall be subject to the
right of first refusal provided for in paragraph (a) of this Section
only so long as the Company Stock is not publicly traded. The term
"publicly traded" refers to a securities exchange registered under
Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or
that is quoted on a system sponsored by a national securities
association registered under Section 15A(b) of the Securities Exchange
Act (15 U.S.C. 780). In addition, in the case of Company Stock which
was acquired with the proceeds of a loan described in Section 5.5, the
selling price and other terms under the right must not be less
favorable to the seller than the greater of the value of the security
determined under Section 6.2, or the purchase price and other terms
offered by a buyer (other than the Employer or the Trust Fund), making
a good faith offer to purchase the security. The right of first refusal
must lapse no later than 14 days after the security holder gives notice
to the holder of the right that an offer by a third party to purchase
the security has been made. The right of first refusal shall comply
with the provisions of paragraphs (a), (b) and (c) of this Section,
except to the extent those provisions may conflict with the provisions
of this paragraph.
7.11 STOCK CERTIFICATE LEGEND
Certificates for shares distributed pursuant to the Plan which are
subject to a right of first refusal shall contain the following legend:
"The shares represented by this certificate are transferable
only upon compliance with the terms of the Uwharrie Capital Corp
Employee Stock Ownership Plan and Trust which grants to Uwharrie
Capital Corp a right of first refusal, a copy of said Plan being on
file in the office of the Company."
7.12 PUT OPTION
(a) Acquired Other than by Exempt Loan. If Company Stock which
was not acquired with the proceeds of an Exempt Loan is distributed to
a Participant and such Company Stock is not readily tradable on an
established securities market, a Participant has a right to require the
Employer to repurchase the Company Stock distributed to such
Participant under a fair valuation formula. Such Company Stock shall be
subject to the provisions of Section 7.12(c).
(b) Acquired By Exempt Loan. Company Stock which is acquired
with the proceeds of an Exempt Loan and which is not publicly traded
when distributed, or if it is subject to a trading limitation when
distributed, must be subject to a put option. For purposes of this
paragraph, a "trading limitation" on Company Stock is a restriction
under any Federal or State securities law or any regulation thereunder,
or an agreement (not prohibited by Section 7.13) affecting the Company
Stock which would make the Company Stock not as freely tradable as
stock not subject to such restriction.
(c) Exercise of Rights. The put option must be exercisable
only by a Participant, by the Participant's donees, or by a person
(including an estate or its distributees) to whom the Company Stock
passes by reason of a Participant's death. (Under this paragraph
49
<PAGE>
Participant or Former Participant means a Participant or Former
Participant and the beneficiaries of the Participant or Former
Participant under the Plan). The put option must permit a Participant
to put the Company Stock to the Employer. Under no circumstances may
the put option bind the Plan. However, it shall grant the Plan an
option to assume the rights and obligations of the Employer at the time
that the put option is exercised. If it is known at the time a loan is
made that Federal or State law will be violated by the Employer's
honoring such put option, the put option must permit the Company Stock
to be put, in a manner consistent with such law, to a third party
(e.g., an affiliate of the Employer or a shareholder other than the
Plan) that has substantial net worth at the time the loan is made and
whose net worth is reasonably expected to remain substantial.
The put option shall commence as of the day following the date
the Company Stock is distributed to the Former Participant and end 60
days thereafter and if not exercised within such 60-day period, an
additional 60-day option shall commence on the first day of the fifth
month of the Plan Year next following the date the stock was
distributed to the Former Participant (or such other 60-day period as
provided in regulations promulgated by the Secretary of the Treasury).
However, in the case of Company Stock that is publicly traded without
restrictions when distributed but ceases to be so traded within either
of the 60-day periods described herein after distribution, the Employer
must notify each holder of such Company Stock in writing on or before
the tenth day after the date the Company Stock ceases to be so traded
that for the remainder of the applicable 60-day period the Company
Stock is subject to the put option. The number of days between the
tenth day and the date on which notice is actually given, if later than
the tenth day, must be added to the duration of the put option. The
notice must inform distributees of the term of the put options that
they are to hold. The terms must satisfy the requirements of this
paragraph.
The put option is exercised by the holder notifying the
Employer in writing that the put option is being exercised; the notice
shall state the name and address of the holder and the number of shares
to be sold. The period during which a put option is exercisable does
not include any time when a distributee is unable to exercise it
because the party bound by the put option is prohibited from honoring
it by applicable Federal or State law. The price at which a put option
must be exercisable is the value of the Company Stock determined in
accordance with Section 6.2. Payment under the put option involving a
"Total Distribution" shall be paid in substantially equal monthly,
quarterly, semiannual or annual installments over a period certain
beginning not later than 30 days after the exercise of the put option
and not extending beyond five (5) years. The deferral of payment is
reasonable if adequate security and a reasonable interest rate on the
unpaid amounts are provided. The amount to be paid under the put option
involving installment distributions must be paid not later than 30 days
after the exercise of the put option. Payment under a put option must
not be restricted by the provisions of a loan or any other arrangement,
including the terms of the Employer's articles of incorporation, unless
so required by applicable state law.
For purposes of this Section, "Total Distribution" means a
distribution to a Participant or his Beneficiary within one (1) taxable
year of the entire Vested Participant's Account.
50
<PAGE>
(d) No Other Put Options. An arrangement involving the Plan
that creates a put option must not provide for the issuance of put
options other than as provided under this Section. The Plan (and the
Trust Fund) must not otherwise obligate itself to acquire Company Stock
from a particular holder thereof at an indefinite time determined upon
the happening of an event such as the death of the holder.
7.13 NONTERMINABLE PROTECTIONS AND RIGHTS
No Company Stock, except as provided in Section 4.3(f) and 7.12(b),
acquired with the proceeds of a loan described in Section 5.5 hereof may be
subject to a put, call, or other option, or buy-sell or similar arrangement when
held by and when distributed from the Trust Fund, whether or not the plan is
then an ESOP. The protections and rights granted in this Section are
nonterminable, and such protections and rights shall continue to exist under the
terms of this Plan so long as any Company Stock acquired with the proceeds of a
loan described in Section 5.5 hereof is held by the Trust Fund or by any
Participant or other person for whose benefit such protections and rights have
been created, and neither the repayment of such loan nor the failure of the Plan
to be an ESOP, nor an amendment of the Plan shall cause a termination of said
protections and rights.
7.14 DIRECT ROLLOVER
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect, at the time and in the manner prescribed by the Administrator, to have
any portion of an "eligible rollover distribution" paid directly to an "eligible
retirement plan" specified by the "distributee" in a "direct rollover."
An "eligible rollover distribution" is any distribution of all or any
portion of the balance to the credit of the "distributee," except that an
"eligible rollover distribution" does not include: any distribution that is one
of a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the "distributee" or the
joint lives (or joint life expectancies) of the "distributee" and the
distributee's designated Beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required under Code
Section 401(a)(9); and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
An "eligible retirement plan" is an individual retirement account
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a), or a
qualified trust described in Code Section 401(a), that accepts the distributee's
"eligible rollover distribution." However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
A "distributee" includes an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p), are
distributees with regard to the interest of the spouse or former spouse.
51
<PAGE>
A "direct rollover" is a payment by the Plan to the "eligible
retirement plan" specified by the "distributee."
ARTICLE VIII
TRUSTEE
8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE
The Trustee shall have the following categories of responsibilities:
(a) Investment Assets. Consistent with the "funding policy and
method" determined by the Employer, to invest, manage, and control the
Plan assets subject, however, to the direction of the Administrator or
of an Investment Manager if the Trustee should appoint such manager as
to all or a portion of the assets of the Plan;
(b) Payment of Benefits. At the direction of the
Administrator, to pay benefits required under the Plan to be paid to
Participants, or, in the event of their death, to their Beneficiaries;
(c) Records of Receipts and Disbursements. To maintain records
of receipts and disbursements and furnish to the Employer and/or
Administrator for each Plan Year a written annual report per Section
8.7; and
(d) Manner of Actions. If there shall be more than one
Trustee, they shall act by a majority of their number, but may
authorize one or more of them to sign papers on their behalf.
8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE
(a) Investment of Trust Fund. The Trustee shall invest and
reinvest the Trust Fund to keep the Trust Fund invested without
distinction between principal and income and in such securities or
property, real or personal, wherever situated, upon the written
instructions of the Administrator, or absent instructions, as the
Trustee shall deem advisable, including, but not limited to, stocks,
common or preferred, bonds and other evidences of indebtedness or
ownership, and real estate or any interest therein. The Trustee shall
at all times in making investments of the Trust Fund consider, among
other factors, the short and long-term financial needs of the Plan on
the basis of information furnished by the Employer. In making such
investments, the Trustee shall not be restricted to securities or other
property of the character expressly authorized by the applicable law
for trust investments; however, the Trustee shall give due regard to
any limitations imposed by the Code or the Act so that at all times
this Plan may qualify as an Employee Stock Ownership Plan and Trust.
(b) Bank or Trust Company. If the Trustee is not a bank or
trust company, the Trustee may employ a bank or trust company pursuant
to the terms of its usual and
52
<PAGE>
customary bank agency agreement, under which the duties of such bank or
trust company shall be of a custodial, clerical, and recordkeeping
nature.
(c) Collective Trust Fund. The Trustee may from time to time
with the consent of the Employer transfer to a common, collective, or
pooled trust fund maintained by any corporate Trustee hereunder, all or
such part of the Trust Fund as the Trustee may deem advisable, and such
part or all of the Trust Fund so transferred shall be subject to all
the terms and provisions of the common, collective, or pooled trust
fund which contemplate the commingling for investment purposes of such
trust assets with trust assets of other trusts. The Trustee may, from
time to time with the consent of the Employer, withdraw from such
common, collective, or pooled trust fund all or such part of the Trust
Fund as the Trustee may deem advisable.
(d) Guaranteed Investment Contracts. The Trustee may, at the
direction of the Administrator, (i) enter into one or more contracts
with a life insurance company or authorized financial institution, the
rate of return from which is fixed by the terms of such contracts, (ii)
transfer to any such insurance company or authorized financial
institution a portion of the Trust Fund in accordance with any such
contracts, and (iii) hold any such contracts as a part of the Trust
Fund until directed otherwise by the Administrator. The Administrator
may direct the Trustee to (i) request any information from any such
insurance company or authorized financial institution necessary or
appropriate to make an investment decision, (ii) demand or accept
withdrawals or other distributions under any such contracts, (iii)
exercise or not to exercise any rights, powers, privileges, and options
under any such contracts and (iv) assign, amend, modify or terminate
any such contracts. The Trustee shall take no action with respect to
any such contracts except at the direction of the Administrator. The
Trustee shall incur no liability for complying with or failing to
comply with any direction of the Administrator unless the Trustee's
action is prima facie contrary to the Act or contrary to the Trustee's
duties and responsibilities under this Plan. Any insurance company or
authorized financial institution issuing any contracts as hereinabove
described may deal with the Trustee as the absolute owner of any such
contracts and need not inquire as to the authority of the Trustee to
act with regard to such contracts. Any such insurance company or
financial institution may accept and rely upon any communication from
the Trustee which is signed by an officer of the Trustee. For purposes
of this Agreement, any such insurance company or financial institution
shall be considered to be an Investment Manager with regard to the
assets of the Plan subject to its control. In no event shall the
underlying assets of such insurance company or financial institution in
which such contracts are invested be considered assets of the Plan or
part of the Trust Fund.
(e) Life Insurance Contracts. At the election of each
Participant, the Trustee, at the direction of the Administrator's hall
apply for, own, and pay premiums on Contracts on the lives of the
Participants [and their dependents]. If a life insurance Policy is to
be purchased for a Participant, the aggregate premium for ordinary life
insurance for each Participant must be less than 50% of the aggregate
of the contributions and Forfeitures to the credit of the Participant
at any particular time. If term insurance is purchased with such
contributions, the aggregate premium must be less than 25% of the
aggregate contributions and Forfeitures allocated to a Participant's
Account. If both term insurance and ordinary life
53
<PAGE>
insurance are purchased with such contributions, the amount expended
for term insurance plus one-half (1/2) of the premium for ordinary life
insurance may not in the aggregate exceed 25% of the aggregate
contributions and Forfeitures allocated to a Participant's Account. The
Trustee must convert the entire value of the life insurance Contracts
at or before retirement into cash or provide for a periodic income so
that no portion of such value may be used to continue life insurance
protection beyond retirement, or distribute the Contracts to the
Participant. Such cash value shall be held in the Participant's Account
until distributed pursuant to the provisions of Section 7.5.
8.3 OTHER POWERS OF THE TRUSTEE
The Trustee, in addition to all powers and authorities under common
law, statutory authority, including the Act, and other provisions of this
Agreement, shall have the following powers and authorities, to be exercised in
the Trustee's sole discretion:
(a) Purchase of Securities. To purchase, or subscribe for, any
securities or other property and to retain the same. In conjunction
with the purchase of securities, margin accounts may be opened and
maintained;
(b) Sale of Securities. To sell, exchange, convey, transfer,
grant options to purchase, or otherwise dispose of any securities or
other property held by the Trustee, by private contract or at public
auction. No person dealing with the Trustee shall be bound to see to
the application of the purchase money or to inquire into the validity,
expediency, or propriety of any such sale or other disposition, with or
without advertisement;
(c) Voting Rights. To vote Company Stock as provided in
Section 8.4, to vote any other stocks, bonds, or other securities; to
give general or special proxies or powers of attorney with or without
power of substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any payments
incidental thereto; to oppose, or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting
corporate securities, and to delegate discretionary powers, and to pay
any assessments or charges in connection therewith; and generally to
exercise any of the powers of an owner with respect to stocks, bonds,
securities, or other property;
(d) Registration of Securities. To cause any securities or
other property to be registered in the Trustee's own name or in the
name of one or more of the Trustee's nominees;
(e) Borrowing. To borrower or raise money for the purposes of
the Plan in such amount, and upon such terms and conditions, as the
Trustee shall deem advisable; and for any sum so borrowed, to issue a
promissory note as Trustee, and to secure the repayment thereof by
pledging all, or any part, of the Trust Fund; and no person lending
money to the Trustee shall be bound to see to the application of the
money lent or to inquire into the validity, expediency, or propriety of
any borrowing;
54
<PAGE>
(f) Cash Investments. To keep such portion of the Trust Fund
in cash or cash balances as the Trustee may, from time to time, deem to
be in the best interests of the Plan, without liability for interest
thereon;
(g) Retention of Prior Investment. To accept and retain for
such time as the Trustee may deem advisable any securities or other
property received or acquired as Trustee hereunder, whether or not such
securities or other property would normally be purchased as investments
hereunder;
(h) Execution of Transfer Documents. To make, execute,
acknowledge, and deliver any and all documents of transfer and
conveyance and any and all other instruments that may be necessary or
appropriate to carry out the powers herein granted;
(i) Settlement of Claims. To settle, compromise, or submit to
arbitration any claims, debts, or damages due or owing to or from the
Plan, to commence or defend suits or legal or administrative
proceedings, and to represent the Plan in all suits and legal and
administrative proceedings;
(j) Employment of Agents. To employ suitable agents and
counsel and to pay their reasonable expenses and compensation, and such
agent or counsel may or may not be agent or counsel for the Employer;
(k) Brokerages. To apply for and procure from responsible
insurance companies to be selected by the Administrator, as an
investment of the Trust Fund such annuity, or other Contracts (on the
life of any Participant) as the Administrator shall deem proper; to
exercise, at any time or from time to time, whatever rights and
privileges may be granted under such annuity, or other Contracts; to
collect, receive, and settle for the proceeds of all such annuity or
other Contracts as and when entitled to do so under the provisions
thereof;
(l) Bank Deposits. To invest funds of the Trust in time
deposits or savings accounts bearing a reasonable rate of interest in
the Trustee's bank;
(m) U.S. Obligations. To invest in Treasury Bills and other
forms of United States government obligations;
(n) Stock Options. Except as hereinafter expressly authorized,
the Trustee is prohibited from selling or purchasing stock options. The
Trustee is expressly authorized to write and sell call options under
which the holder of the option has the right to purchase shares of
stock held by the Trustee as a part of the assets of this Trust, if
such options are traded on and sold through a national securities
exchange registered under the Securities Exchange Act of 1934, as
amended, which exchange has been authorized to provide a market for
option contracts pursuant to Rule 9B-1 promulgated under such Act, and
so long as the Trustee at all times up to and including the time of
exercise or expiration of any such option holds sufficient stock in the
assets of this Trust to meet the obligations under such option if
exercised. In addition, the Trustee is expressly authorized to purchase
and acquire call options for the purchase of shares of stock covered by
such options if the options are
55
<PAGE>
traded on and purchased through a national securities exchange as
described in the immediately preceding sentence, and so long as any
such option is purchased solely in a closing purchase transaction,
meaning the purchase of an exchange traded call option the effect of
which is to reduce or eliminate the obligations of the Trustee with
respect to a stock option contract or contracts which it has previously
written and sold in a transaction authorized under the immediately
preceding sentence;
(o) Savings and Loan Deposits. To deposit monies in federally
insured savings accounts or certificates of deposit in banks or savings
and loan associations;
(p) Pooling Funds. To pool all or any of the Trust Fund, from
time to time, with assets belonging to any other qualified employee
pension benefit trust created by the Employer or an affiliated company
of the Employer, and to commingle such assets and make joint or common
investments and carry joint accounts on behalf of this Plan and such
other trust or trusts, allocating undivided shares or interests in such
investments or accounts or any pooled assets of the two or more trusts
in accordance with their respective interests;
(q) Miscellaneous. To do all such acts and exercise all such
rights and privileges, although not specifically mentioned herein, as
the Trustee may deem necessary to carry out the purposes of the Plan;
(r) Statutory Powers. Without in any way limiting or modifying
the foregoing, and in addition thereto, the Trustee shall have all of
the powers set forth in North Carolina General Statutes Section 32-26
and such powers are specifically incorporated herein by reference.
8.4 VOTING COMPANY STOCK
The Trustee shall vote all Company Stock held by it as part of the Plan
assets. Provided, however, that if any agreement entered into by the Trust
provides for voting of any shares of Company Stock pledged as security for any
obligation of the Plan, then such shares of Company Stock shall be voted in
accordance with such agreement. The Trustee shall not vote Company Stock which a
Participant or Beneficiary, pursuant to this Section, fails to exercise.
Notwithstanding the foregoing, if the Employer has a registration-type
class of securities, each Participant or Beneficiary shall be entitled to direct
the Trustee as to the manner in which the Company Stock which is entitled to
vote and which is allocated to the Company Stock Account of such Participant or
Beneficiary is to be voted. If the Employer does not have a registration-type
class of securities, each Participant or Beneficiary in the Plan shall be
entitled to direct the Trustee as to the manner in which voting rights on shares
of Company Stock which are allocated to the Company Stock Account of such
Participant or Beneficiary are to be exercised with respect to any corporate
matter which involves the voting of such shares with respect to the approval or
disapproval of any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially prescribed in
Regulations. For purposes of this Section the term "registration-type class of
securities" means: (A) a class of securities required to be registered under
Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities
which would be
56
<PAGE>
required to be so registered except for the exemption from registration provided
in subsection (g)(2)(H) of such Section 12.
If the Employer does not have a registration-type class of securities
and the by-laws of the Employer require the Plan to vote an issue in a manner
that reflects a one-man, one-vote philosophy, each Participant or Beneficiary
shall be entitled to cast one vote on an issue and the Trustee shall vote the
shares held by the Plan in proportion to the results of the votes cast on the
issue by the Participants and Beneficiaries.
8.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS
At the direction of the Administrator, the Trustee shall, from time to
time, in accordance with the terms of the Plan, make payments out of the Trust
Fund. The Trustee shall not be responsible in any way for the application of
such payments.
8.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES
The Trustee shall be paid such reasonable compensation as shall from
time to time be agreed upon in writing by the Employer and the Trustee. An
individual serving as Trustee who already receives full-time pay from the
Employer shall not receive compensation from the Plan. In addition, the Trustee
shall be reimbursed for any reasonable expenses, including reasonable counsel
fees incurred by it as Trustee. Such compensation and expenses shall be paid
from the Trust Fund unless paid or advanced by the Employer. All taxes of any
kind and all kinds whatsoever that may be levied or assessed under existing or
future laws upon, or in respect of, the Trust Fund or the income thereof, shall
be paid from the Trust Fund.
8.7 ANNUAL REPORT OF THE TRUSTEE
(a) Statement of Account. Within a reasonable period of time
after the later of the Anniversary Date or receipt of the Employer's
contribution for each Plan Year, the Trustee shall furnish to the
Employer and Administrator a written statement of account with respect
to the Plan Year for which such contribution was made setting forth:
(1) the net income, or loss, of the Trust Fund;
(2) the gains, or losses, realized by the Trust Fund
upon sales or other disposition of the assets;
(3) the increase, or decrease, in the value of the
Trust Fund;
(4) all payments and distributions made from the
Trust Fund; and
(5) such further information as the Trustee and/or
Administrator deems appropriate.
57
<PAGE>
(b) Approval of Statement of Account. The Employer, upon its
receipt of the statement of account, shall acknowledge receipt thereof
in writing and advise the Trustee and/or Administrator of its approval
or disapproval thereof. Failure by the Employer to disapprove any such
statement of account within thirty (30) days after its receipt thereof
shall be deemed an approval thereof. The approval by the Employer of
any statement of account shall be binding as to all matters embraced
therein as between the Employer and the Trustee to the same extent as
if the account of the Trustee had been settled by judgment or decree in
an action for a judicial settlement of its account in a court of
competent jurisdiction in which the Trustee, the Employer and all
persons having or claiming an interest in the Plan were parties;
provided, however, that nothing herein contained shall deprive the
Trustee of its right to have its accounts judicially settled if the
Trustee so desires.
8.8 AUDIT
(a) When Audit Required. If an audit of the Plan's records
shall be required by the Act and the regulations thereunder for any
Plan Year, the Administrator shall direct the Trustee to engage on
behalf of all Participants an independent qualified public accountant
for that purpose. Such accountant shall, after an audit of the books
and records of the Plan in accordance with generally accepted auditing
standards, within a reasonable period after the close of the Plan Year,
furnish to the Administrator and the Trustee a report of his audit
setting forth his opinion as to whether each of the following
statements, schedules or lists, or any others that are required by
Section 103 of the Act or the Secretary of Labor to be filed with the
Plan's annual report, are presented fairly in conformity with generally
accepted accounting principles applied consistently. All auditing and
accounting fees shall be an expense of and may, at the election of the
Administrator, be paid from the Trust Fund.
(b) Reliance Upon Certain Certifications. If some or all of
the information necessary to enable the Administrator to comply with
Section 103 of the Act is maintained by a bank, insurance company, or
similar institution, regulated and supervised and subject to periodic
examination by a state or federal agency, it shall transmit and certify
the accuracy of that information to the Administrator as provided in
Section 103(b) of the Code within 120 days after the end of the Plan
Year or by such other date as may be prescribed under regulations of
the Secretary of Labor.
8.9 RESIGNATION, REMOVAL, AND SUCCESSION OF TRUSTEE
(a) Resignation of Trustee. The Trustee may resign at any time
by delivering to the Employer, at least 30 days before its effective
date, a written notice of his resignation.
(b) Removal of Trustee by Employer. The Employer may remove
the Trustee by mailing by registered or certified mail, addressed to
such Trustee at his last known address, at least 30 days before its
effective date, a written notice of his removal.
(c) Appointment of Successor Trustee. Upon the death,
resignation, incapacity, or removal of any Trustee, a successor may be
appointed by the Employer; and such successor, upon accepting such
appointment in writing and delivering same to the
58
<PAGE>
Employer, shall, without further act, become vested with all the
estate, rights, powers, discretions, and duties of his predecessor with
like respect as if he were originally named as a Trustee herein. Until
such a successor is appointed, the remaining Trustee or Trustees shall
have full authority to act under the terms of the Plan.
(d) Appointment of Successor Trustee in Advance. The Employer
may designate one or more successors prior to the death, resignation,
incapacity removal of a Trustee. In the event a successor is so
designated by the Employer and accepts such designation, the successor
shall, without further act, become vested with all the estate, rights,
powers, discretions, and duties of his predecessor with the like effect
as if he were originally named as Trustee herein immediately upon the
death, resignation, incapacity, or removal of his predecessor.
(e) Interim Account Requirements. Whenever any Trustee
hereunder ceases to serve as such, he shall furnish to the Employer and
Administrator a written statement of account with respect to the
portion of the Plan Year during which he served as Trustee. This
statement shall be either (i) included as part of the annual statement
of account for the Plan Year required under Section 8.7 or (ii) set
forth in a special statement. Any such special statement of account
should be rendered to the Employer no later than the due date of the
annual statement of account for the Plan Year. The procedures set forth
in Section 8.7 for the approval by the Employer of annual statements of
account shall apply to any special statement of account rendered
hereunder and approval by the Employer of any such special statement in
the manner provided in Section 8.7 shall have the same effect upon the
statement as the Employer's approval of an annual statement of account.
No successor to the Trustee shall have any duty or responsibility to
investigate the acts or transactions of any predecessor who has
rendered all statements of account required by Section 8.7 and this
subparagraph.
8.10 TRANSFER OF INTEREST
Notwithstanding any other provision contained in this Plan, the Trustee
at the direction of the Administrator shall transfer the Vested interest, if
any, of such Participant in his account to another trust forming part of a
pension, profit sharing, or stock bonus plan maintained by such Participant's
new employer and represented by said employer in writing as meeting the
requirements of Code Section 401(a), provided that the trust to which such
transfers are made permits the transfer to be made.
ARTICLE IX
AMENDMENT, TERMINATION AND MERGERS
9.1 AMENDMENT
(a) Rights of Employer to Amend Plan. The Employer shall have
the right at any time to amend the Plan, subject to the limitations of
this Section. However, any amendment which affects the rights, duties,
or responsibilities of the Trustee may only be
59
<PAGE>
made with the Trustee's written consent. Any such amendment shall
become effective as provided therein upon its execution. The Trustee
shall not be required to execute any such amendment unless the Trust
provisions contained herein are a part of the Plan and the amendment
affects the duties of the Trustee hereunder.
(b) Exclusive Benefit Rule. No amendment to the Plan shall be
effective if it authorizes or permits any part of the Trust Fund (other
than such part as is required to pay taxes and administration expenses)
to be used for or diverted to any purpose other than for the exclusive
benefit of the Participants or their Beneficiaries or estates; or cause
any reduction in the amount credited to the account of any Participant;
or cause or permit any portion of the Trust Fund to revert to or become
property of the Employer.
(c) Protected Benefit. Except as permitted by Regulations, no
Plan amendment or transaction having the effect of a Plan amendment
(such as a merger, plan transfer or similar transaction) shall be
effective to the extent that it eliminates or reduces any "Section
411(d)(6) protected benefit" or adds or modifies conditions relating to
"Section 411(d)(6) protected benefits" the result of which is a further
restriction on such benefit unless such protected benefits are
preserved with respect to benefits accrued as of the later of the
adoption date or effective date of the amendment. "Section 411(d)(6)
protected benefits" are benefits described in Code Section
411(d)(6)(A), early retirement benefits and retirement-type subsidies,
and optional forms of benefits.
In addition, no such amendment shall have the effect of
terminating the protections and rights set forth in Section 7.13,
unless such termination shall then be permitted under the applicable
provisions of the Code and Regulations; such a termination is currently
expressly prohibited by Regulation 54.4975-11(a)(3)(ii).
9.2 TERMINATION
(a) Rights of Employer to Terminate Plan. The Employer shall
have the right at any time to terminate the Plan by delivering to the
Trustee and Administrator written notice of such termination. Upon any
full termination or partial termination, all amounts credited to the
affected Participants' Accounts shall become 100% Vested as provided in
Section 7.5 and shall not thereafter be subject to forfeiture, and all
unallocated amounts shall be allocated to the accounts of all
Participants in accordance with the provisions hereof.
(b) Distribution to Participants Upon Termination. Upon the
full termination of the Plan, the Employer shall direct the
distribution of the assets of the Trust Fund to Participants in a
manner which is consistent with and satisfies the provisions of Section
7.5. Distributions to a Participant shall be made in cash or in
property, or through the purchase of irrevocable nontransferable
deferred commitments from an insurer. Except as permitted by
Regulations, the termination of the Plan shall not result in the
reduction of "Section 411(d)(6) protected benefits" in accordance with
Section 9.1(c).
9.3 MERGER OR CONSOLIDATION
60
<PAGE>
This Plan and Trust may be merged or consolidated with, or its assets
and/or liabilities may be transferred to any other Plan and trust only if the
benefits which would be received by a Participant of this Plan, in the event of
a termination of the Plan immediately after such transfer, merger, or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger, or
consolidation, and such transfer, merger, or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 9.1(c).
ARTICLE X
MISCELLANEOUS
10.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
10.2 ALIENATION
(a) Prohibition Against Alienation. Subject to the exceptions
provided below, no benefit which shall be payable out of the Trust Fund
to any person (including a Participant or his Beneficiary) shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, or
charge the same shall be void; and no such benefit shall in any manner
be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any such person, nor shall it be subject to
attachment or legal process for or against such person, and the same
shall not be recognized by the Trustee, except to such extent as may be
required by law.
(b) Qualified Domestic Relations Orders. This provision shall
not apply to a "qualified domestic relations order" defined in Code
Section 414(p), including those other domestic relations orders
permitted to be so treated by the Administrator under the provisions of
the Retirement Equity Act of 1984 to the extent that the Administrator
determines the qualified status of such domestic relations orders in
accordance with the procedure specified in Section 2.10 and administers
distributions hereunder.
10.3 CONSTRUCTION OF PLAN
This Plan and Trust shall be construed and enforced according to the
Act and the laws of the State of North Carolina, other than its laws respecting
choice of law, to the extent not preempted by the Act.
61
<PAGE>
10.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine, or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.
10.5 LEGAL ACTIONS AND INDEMNIFICATION
The Employer and the Trust Fund shall indemnify any Fiduciary of the
Plan against any and all claims, losses, damages, expenses, and liabilities,
including reasonable attorneys fees, arising from any action or failure to act,
except when the same is judicially determined to be due to gross negligence or
willful misconduct of the Fiduciary.
10.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Exclusive Benefit Rule. Except as provided below and
otherwise specifically permitted by law, it shall be impossible by
operation of the Plan or of the Trust, by termination of either, by
power of revocation or amendment, by the happening of any contingency,
by collateral arrangement or by any other means, for any part of the
corpus or income of any trust fund maintained pursuant to the Plan or
any funds contributed thereto to be used for, or diverted to, purposes
other than the exclusive benefit of Participants, Retired Participants,
or their Beneficiaries.
(b) Return of Contributions Made Under Mistake of Fact. In the
event the Employer or a Participating Employer shall make an excessive
contribution under a mistake of fact pursuant to Section 403(c)(2)(A)
of the Act, the applicable employer may demand repayment of such
excessive contribution at any time within one (l) year following the
time of payment and the Trustees shall return such amount to the
employer within the one (l) year period. Earnings of the Plan
attributable to the excess contributions may not be returned to the
applicable employer but any losses attributable thereto must reduce the
amount so returned.
10.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless exempted
by the Act and regulations thereunder, shall be bonded in an amount not less
than ten percent (10%) of the amount of the funds such Fiduciary handles;
provided, however, that the minimum bond shall be $1,000 and the maximum bond,
$500,000. The amount of funds handled shall be determined at the beginning of
each Plan Year by the amount of funds handled by such person, group, or class to
be covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Section 412(a)(2) of the Act), and the bond shall be in a
form approved by the Secretary of Labor. Notwithstanding anything in the Plan to
the contrary, the cost of such bonds shall be an
62
<PAGE>
expense of and may, at the election of the Administrator, be paid from the Trust
Fund or by the Employer.
10.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
10.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
10.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer
and any Participating Employers, any of whom may require such Participant, legal
representative, Beneficiary, guardian, or committee, as a condition precedent to
such payment, to execute a receipt and release thereof in such form as shall be
determined by the Trustee or applicable employer.
10.11 ACTION BY THE EMPLOYER
Whenever the Employer or Participating Employer under the terms of the
Plan is permitted or required to do or perform any act or matter or thing, it
shall be done and performed by a person duly authorized by its legally
constituted authority.
10.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (l) the Employer, (2) the
Administrator, and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, as among the named Fiduciaries, the
Employer shall have the sole responsibility for making the contributions
provided for under Section 4.1; and shall have the sole authority to appoint and
remove the Trustee and the Administrator; to formulate the Plan's "funding
policy and method;" and to amend or terminate, in whole or in part, the Plan.
The Administrator shall have the sole responsibility for the administration of
the Plan, which responsibility is specifically described in the Plan. The
Trustee
63
<PAGE>
shall have the sole responsibility of management of the assets held under the
Trust, except those assets, the management of which have been reserved by the
Administrator or assigned to an Investment Manager. In the event of such
reservation or assignment of responsibility of management of the assets held
under the Trust, the Employer, Administrator or Investment Manager shall be
solely responsible for the management of the assets assigned to it, all as
specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information, or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities, and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
10.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
10.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Initial Qualification. Notwithstanding anything herein to
the contrary, contributions to this Plan are conditioned upon the
initial qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
employer within one (1) year after such determination, provided the
application for the determination is made by the time prescribed by law
for filing the employer's return for the taxable year in which the Plan
was adopted, or such later date as the Secretary of the Treasury may
prescribe.
(b) Deductibility of Contributions. Notwithstanding any
provisions to the contrary, except Sections 3.5, 3.6, and 4.1(c), any
contribution by an employer to the Trust Fund is conditioned upon the
deductibility of the contribution by the employer under the Code and,
to the extent any such deduction is disallowed, the employer may,
within one (1) year following the disallowance of the deduction, demand
repayment of such disallowed contribution and the Trustee shall return
such contribution within one (l) year following the disallowance.
Earnings of the Plan attributable to the excess contribution may not be
returned to the employer, but any losses attributable thereto must
reduce the amount so returned.
10.15 UNIFORMITY
64
<PAGE>
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
10.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL
The Employer may request an interpretative letter from the Securities
and Exchange Commission stating that the transfers of Company Stock contemplated
hereunder do not involve transactions requiring a registration of such Company
Stock under the Securities Act of 1933. In the event that a favorable
interpretative letter is not obtained, the Employer reserves the right to amend
the Plan and Trust retroactively to their Effective Dates in order to obtain a
favorable interpretative letter or to terminate the Plan.
ARTICLE XI
PARTICIPATING EMPLOYERS
11.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any other corporation or entity, whether an affiliate
or subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Trustee. Each Participating Employer shall be required to
use the same Trustee as provided in this Plan.
(b) Commingling of Assets. The Trustee may, but shall not be
required to, commingle, hold, and invest as one Trust Fund all
contributions made by the Employer and Participating Employers, as well
as all increments thereof. However, the assets of the Plan shall, on an
ongoing basis, be available to pay benefits to all Participants and
Beneficiaries under the Plan without regard to the Employer or
Participating Employer who contributed such assets.
(c) Transfers Between Employers. The transfer of any
Participant from or to an Employer or Participating Employer
participating in this Plan, whether he be an Employee of the Employer
or a Participating Employer, shall not affect such Participant's rights
under the Plan, and all amounts credited to such Participant's Account
as well as his accumulated service time with the transferor or
predecessor, and his length of participation in the Plan, shall
continue to his credit.
(d) Expenses. Any expenses of the Plan which are to be paid by
the Employer or borne by the Trust Fund shall be paid by the Employer
and each Participating Employer
65
<PAGE>
in the same proportion that the total amount standing to the credit of
all Participants employed by such employer bears to the total standing
to the credit of all Participants.
11.3 DESIGNATION OF AGENT
Each of the Employer and each Participating Employer shall be deemed to
be a part of this Plan; provided, however, that with respect to all of its
relations with the Trustee and Administrator for the purpose of this Plan, each
Participating Employer shall be deemed to have designated irrevocably the
Employer as its agent.
11.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between and among
the Employer and Participating Employers, and in the event of any such transfer,
the Employee involved shall carry with him his accumulated service and
eligibility. No such transfer shall effect a termination of employment
hereunder, and the employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Employer or Participating Employer from whom the Employee was
transferred.
11.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
Any contribution subject to allocation during each Plan Year shall be
allocated among all Participants of the Employer and all Participating Employers
who are Affiliated Employers in accordance with the provisions of this Plan. On
the basis of the information furnished by the Administrator, the Trustee shall
keep separate books and records concerning the affairs of each Employer and
Participating Employers hereunder and as to the accounts and credits of the
Employees of each Employer and Participating Employers. The Trustee may, but
need not, register Contracts so as to evidence that a particular Employer or
Participating Employer is the interested employer hereunder, but in the event of
an Employee transfer from one Employer or Participating Employer to another, the
employing employer shall immediately notify the Trustee thereof.
11.6 AMENDMENT
At any time when there shall be a Participating Employer hereunder,
amendment hereto may and shall be made only by Uwharrie Capital Corp, and the
written consent or action of any other Participating Employer shall not be
required as to any amendment, and the consent of the Trustee shall be required
as to any amendment only when such consent is necessary in accordance with the
terms of this Plan or the rights and responsibilities of the Trustee shall be
directly affected thereby.
11.7 DISCONTINUANCE OF PARTICIPATION
The Employer and any Participating Employer shall be permitted to
discontinue or revoke its participation in the Plan. At the time of any such
discontinuance or revocation, satisfactory evidence thereof and of any
applicable conditions imposed shall be delivered to the Trustee. The Trustee
shall thereafter transfer, deliver, and assign Contracts and other Trust Fund
assets allocable to the Participants of such employer to such new trustee as
shall have been designated by such
66
<PAGE>
employer, in the event that it has established a separate pension Plan for its
Employees provided, however, that no such transfer shall be made if the result
is the elimination or reduction of any "Section 411(d)(6) protected benefits" in
accordance with Section 9.1(c). If no successor is designated, the Trustee shall
retain such assets for the Employees of said employer pursuant to the provisions
of Article VIII hereof. In no such event shall any part of the corpus or income
of the Trust as it relates to such employer be used for or diverted for purposes
other than for the exclusive benefit of the Employees of such Employer.
11.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all of the Employer and any Participating
Employers and all Participants, to effectuate the purpose of this Article.
11.9 PARTICIPATING EMPLOYER CONTRIBUTION FOR AFFILIATE
If any Employer or Participating Employer is prevented in whole or in
part from making a contribution to the Trust Fund which it would otherwise have
made under the Plan by reason of having no current or accumulated earnings or
profits, or because such earnings or profits are less than the contribution
which it would otherwise have made, then, pursuant to Code Section 404(a)(3)(B),
so much of the contribution which such Employer or Participating Employer was so
prevented from making may be made, for the benefit of the participating
Employees of such Employer or Participating Employer, by the other or the
Employer and Participating Employers who are members of the same affiliated
group within the meaning of Code Section 1504 to the extent of their current or
accumulated earnings or profits, except that such contribution by each such
other Employer and/or Participating Employer shall be limited to the proportion
of its total current and accumulated earnings and profits remaining after
adjustment for its contribution to the Plan made without regard to this
paragraph which the total prevented contribution bears to the total current and
accumulated earnings and profits of all employers remaining after adjustment for
all contributions made to the Plan without regard to this paragraph.
An employer on behalf of whose Employees a contribution is made under
this paragraph shall not be required to reimburse the contributing employers.
67
<PAGE>
IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
UWHARRIE CAPITAL CORP
Employer
By /s/ Roger L. Dick
-----------------------------
President
(CORPORATE SEAL)
ATTEST:
/s/ Tamara M. Singletary
- ------------------------
Secretary
TRUSTEE:
/s/ Roger L. Dick
-------------------------------
Roger L. Dick, Trustee
/s/ Ronald B. Davis
-------------------------------
Ronald B. Davis, Trustee
/s/ Christy D. Stoner
-------------------------------
Christy D. Stoner, Trustee
/s/ Lorelei V. Misenheimer
-------------------------------
Lorelei V. Misenheimer, Trustee
/s/ Jacqueline S. Jernigan
-------------------------------
Jacqueline S. Jernigan, Trustee
/s/ Barbara S. Williams
-------------------------------
Barbara S. Williams, Trustee
68
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the 1999
Annual Report of the Registrant and is qualified in its entirety to reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,316
<INT-BEARING-DEPOSITS> 117,760
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,727
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 140,095
<ALLOWANCE> 1,003
<TOTAL-ASSETS> 192,717
<DEPOSITS> 134,823
<SHORT-TERM> 21,739
<LIABILITIES-OTHER> 843
<LONG-TERM> 18,251
0
0
<COMMON> 6,932
<OTHER-SE> 10,129
<TOTAL-LIABILITIES-AND-EQUITY> 192,717
<INTEREST-LOAN> 11,157
<INTEREST-INVEST> 1,833
<INTEREST-OTHER> 38
<INTEREST-TOTAL> 13,028
<INTEREST-DEPOSIT> 4,633
<INTEREST-EXPENSE> 5,673
<INTEREST-INCOME-NET> 7,355
<LOAN-LOSSES> 210
<SECURITIES-GAINS> (529)
<EXPENSE-OTHER> 6,900
<INCOME-PRETAX> 1,674
<INCOME-PRE-EXTRAORDINARY> 1,152
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,152
<EPS-BASIC> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 4.61
<LOANS-NON> 317
<LOANS-PAST> 27
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,170
<CHARGE-OFFS> 431
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 1,003
<ALLOWANCE-DOMESTIC> 1,003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
